India’s Growth Fails to Enthuse Deal Activity

M&A activity has failed to ignite this year in India and has performed miserably compared to last year. Despite all the hoopla about India being second fasted growing economy in the world, the M&A activity this year hasn’t even been 50% compared to last year. Considering the fact that 2008 was written off financially, performance should have been better this year, a decline is certainly surprising. Last year, for first three quarters $30bn was spend on M&A activity in India and in comparison this year during first three quarters the figures were meager $13bn. The average deal value also fell by half to $33mn from $67mn last year.

Foreign acquires only accounted for just $3.9bn of all such deals this year, which is only 30% of the total deal value. Again this is lower than last year’s share of foreign acquirers in total deal value, which stood at $15.7bn, five times the present value. Last year, Asian countries had dominated the list of biggest acquirers, four out of ten. This year the figure fell to three out of ten.

Mauritius did the biggest turnaround from being at bottom of top ten foreign acquirers to number one this year with $1.2bn acquisition followed by France, which accounted for a quarter of all outside deals. The United States came third with $379mn worth of acquisitions of Indian companies. Japan which was the biggest foreign acquirer last year slid five places to sixth position this year.

This year, Infrastructure sector was the common target sector for both Indian and foreign acquirers, telecommunication and Electric, Gas & Water sector were in top five target sector for both domestic and foreign acquirers. Pharma sector, which was the biggest target sector for both foreign and domestic acquirers, retained its position but only for foreign acquirers, who invested $1bn this year. Indian acquirers made most of the acquisitions in Oil & Gas sector.

Retail food chain was the pick of foreign acquirers it hardly featured on the acquisition radar of domestic acquirers, but foreign acquirers made investment of $100mn. Similarly, domestic acquirers made acquisition worth $677mn in Business Services sector which was almost disregarded by foreign acquirers.

Indian Mobile Subscription all Boom in Gloom & Doom Economic Situation

Notwithstanding the gloom in the economy, growth in mobile subscriber base continues to increase by leaps and bounds, buoyed further by festive-season sales. It has now become the fastest growing mobile market of the world, where telecom companies are offering services at quite low rates.

Global System for Mobile communications (GSM)-based networks added 3.3% or 7.7 mn subscribers (excluding Reliance Telecom) in October. The country has a total 241.4 mn users in October as compared to 233.7 mn users in September, as per the data of nine telecom companies maintained by Cellular Operators’ Association of India (COAI). At the current growth rate, the GSM segment is expected to cross the historic 250 mn part by December 2008.

Among the top five in the segment, top operator Bharti Airtel Ltd added 2.72 mn new users in October, taking its total base to 80.2 mn, while Vodafone Essar added its highest ever number of new users at 2.1 mn to take its base to 56.7 mn. Public sector operator and fourth ranked Bharat Sanchar Nigam Ltd (BSNL) added 669,551 new users to have a base of 39.8 mn users, while fifth ranked Idea Cellular Ltd signed up 1.2 mn users in October to have a total of 31.6 mn.

Nokia to Manufacture Telecommunications Equipment in Chennai

Nokia Siemens Network is also heading for Chennai to manufacture and distribute mobile communication infrastructure equipment. Earlier, another Telecom giant Motorola had chosen Chennai to set up it manufacturing base for mobile phones in India. The present investment by Nokia is not for mobile phones, but for the base station equipment.

Nokia would be investing USD 70mn in its Chennai facility to manufacture Base Station Controllers, Flexi EDGE BTS, Microwave Radio, Access line-card products and other telecom equipment. The company is also planning to increase the production of units to 4,000 per month in span of next six to nine months.

India is increasingly attracted electronics and telecommunications equipment manufacturers for several reasons including engineering design capabilities and also to cater the growing telecommunications market more efficiently.

India’s CAPEX to drop significantly in 2008-09

In early ominous signs of things to come, a Reserve Bank of India (RBI) study has estimated that the capital expenditure (capex) in India by corporates may slow down by more than 30% in 2008-09. This expected drop in capex comes after four consecutive years of growth at more than 40%. As per the report, capex figures are expected to touch Rs 173,173 cr in 2008-09, drastically lower than the Rs 245,107 cr raised by companies in 2007-08.

In the last financial year, one of the key drivers of growth in capex was the Rs 442,000 cr worth of capital inflows of which 37% was in foreign debt, 27% was equity market-related inflows, 14% was net FDI and the balance 22% in other hybrid inflows. Major reasons for the drop is obvious the difficult of companies in raising fund overseas in the last six months, due to the global credit turmoil, following the sub-prime credit crisis in the US. The other major contributor viz. the local equity market has also been in doldrums in the past six months, with IPOs either not getting the required response or being postponed due to fear of under subscription. High inflation and a spate of interest rates hikes, has also led to slowdown in investment plans announced by industries?

Over the last three years, investments were made primarily in the automobile, cement, oil and gas, power, steel and telecom sectors. However, most of these sectors are unlikely to go for fresh expansion in the coming years on account of ongoing recession and price freeze by the government to control inflation. The cement, steel and sugar sectors are chief examples of industries that have been caught between rising input costs and disproportionate increase in realisation on account of price controls. The projected downside risk to growth in 2008-2009 has increased due to uncertain global conditions, primarily because of volatility in oil prices and capital markets.

However with India getting the waiver at the NSG, the future looks bright for the capital goods industries, which could prop up the capex figure with their investments. Even telecom sector could provide a boost with the advent of 3G services in India and the additional requirement of infrastructure for the services.

Power Sector Tops Investment in H1 2008

Realty surprisingly makes it to the second spot

A study conducted by the Associated Chambers of Commerce and Industry of India (Assocham) has put the power sector in the country in the numero-uno position in terms of investments received in the January-June 2008. The power sector received investments worth Rs 1,959,13 cr in the stipulated period, accounting for almost 31% of the overall investments in the corporate sector. Power majors like Tata Power, Sterlite Industries, Jindal India Thermal Power and Lanco Group are among the corporates that have lined up big investments in the sector.

Second in line in investments was the realty sector, a surprising fact, even after interest rates have spiraled high, and there are reports of slowdown in demand for real estate. The sector attracted investments worth, Rs151,000 cr for the next two to five years. Omaxe, Uppal Group Developers and Mahindra World City, were among the major companies unveiling their investments in the sector.

Others in top five in descending order were the steel sector with investments of Rs 1,086, 09 cr, retail sector with Rs 8,92,00 cr, and followed closely by the telecom sector with Rs 8,91,00 cr. Steel sector saw investments majors like Vedanta Resources, Tata Steel, Bhushan Steel and JSW Steel, the retail sector growing at an estimated 25%, saw investments by corporate retailers and real estate developers like Reliance Retail, Parsvanath Developers and Videocon Industries, while aggressive marketing and falling tariffs by major telecom players like Reliance Communication, Aircel and Quippo Telecom Infrastructure contributed to the boom in the sector.

Oil & Gas, Automobile, IT, Construction and Manufacturing and Ports & Shipping were the remaining sectors that made it to the list of top ten with investment figures ranging from Rs 30,000cr to Rs 90,000cr.

Indian Consumers now to Access IPTV for Entertainment

Setting the path for consumers in India to get access to television content over broadband internet, the government approved guidelines for allowing broadcasters to share their content with Internet Protocol Television (IPTV) providers. The present norms allow broadcasters to share their channels only with cable and direct-to-home platforms. IPTV service will not be costlier than DTH or cable providers as the government has also made it clear that that IPTV provider would get channels from broadcasters as per broadcasters’ rates fixed by TRAI.

IPTV is a new platform for delivering television content using an IP network and high speed broadband technology. The rapid development in telecom technologies along with increasing digitalisation of broadcasting is driving services like IPTV. For consumers, the move will mean access to interactive content on what will be a two-way link, enabling services such as video on demand, time shift TV, group-gaming and interactive advertising.

The decision to amend the laws is likely to benefit telecom players such as Bharti Airtel, Reliance Communications and BSNL. MTNL had already started offering IPTV services in Mumbai and it would have first mover advantage. BSNL has also entered into a tie-up to make a foray into IPTV service.

Internet service providers (ISPs) whose net worth is more than Rs 100 cr will also be able to offer the services. However, only two or three ISPs would be able to offer this service, as only those many have net worth above the prescribed limit. Broadcasters would however benefit to great extent as the current cable and DTH platforms are struggling to carry more than 200 channels, while there are 360 channels with down linking permission waiting on the anvil, which will be benefited by IPTV. The IPTV platform also presents cable operators an opportunity to move closer to complete digitization and also offer a service with potential for higher billings per customer.

Telecom Regulatory Authority of India (TRAI) had submitted its final recommendations for IPTV to the Information and Broadcasting (I&B) Ministry several months ago, but it got approval only now. The other recommendation to increase foreign direct investment (FDI) in IPTV services to 74% as opposed to the current 49% in the cable sector has still not been approved. The regulator also authorized the department of telecommunications (DoT) to permit any telecom licensee to provide IPTV services. Any cable operator registered under the Cable Television Network (Regulation) Act, 1995, also does not need an additional license for IPTV services.

The content transmitted on IPTV will come under regulation by multiple agencies. While, the ministry of I&B will ensure adherence to the programming and advertising code, the ministry of communications and information technology and DoT will monitor the Internet content as per the IT Act of 2000.

With 40 mn landline connections capable to deliver IPTV, the future looks bright for the service. According to a December report by industry body ASSOCHAM and consultant Ernst and Young, IPTV will garner one million subscribers by 2010.

BSNL IPO: Anti-privatisation or under-valuation?

Government and Trade unions are again at clash over mulling IPO of public sector telecom giant BSNL. Trade unions see this move as a step towards privastisation of BSNL and thus they are dead against the PSU going public. While the government insists that listing of BSNL is necessary for granting “Navaratna” status, union leaders feel otherwise. They point out “Navaratna” companies such as HAL and LIC, which are still not listed. Another reason for unions’ opposition is the past decisions by government of ultimately selling listed PSUs like VSNL and BALCO.

Unions are also using the VSNL/BALCO sale as argument for undervaluation. They have accused government of undervaluing the PSUs and are using case of BALCO sale to strengthen their argument. The government has valued BSNL at around $100 bn based on the Vodafone and HutchisonEssar deal. However, the unions are in opinion that BSNL is valued ten times more than the government valuation, which would put it at $1,000 bn. According to union’s estimation, the actual divestment of shares for the IPO collection should be 1% of BSNL shares not 10%.

The BSNL valuation funda becomes murky, as the government assessment based is based on some deal and some other company with less similarity to BSNL. Vodafone, unlike BSNL attracts customers that attach premium to the service offered by the service provider while, BSNL’s product offering is considered economical. BSNL also has large number of workforce and its productivity and efficiency yet to be determined. Its growth rate has not been as high as some private players in GSM market.


But, BSNL still is the largest telecom player and has virtual monopoly over wireline and rural telecom business, plus it is a big time player in long distance call and internet business. Its tower unit will attract huge valuation. Also, unions prefer companies to be valued on their assets rather than their net worth and business prospect. The government, which is in desperate need of funds will like go for IPO as early as possible but its one time friend and present nemesis, CPI & CPM, are bound to create ruckus over the issue of valuations.

India ranks poorly in the top 50 of UNIDO’s global Industrial Competitiveness; Automobiles and Textile industry make it to the top

India has been ranked 41st in the latest industrial competitiveness report prepared by United Nations Industrial Development Organisation (UNIDO). The ranking is based on the competitive industrial performance of countries. It is based on two sets of components viz., industrial development indicators and the competitive industrial performance index. It benchmarks a country in the backdrop of liberalization and globalisation. The scorecard suggests about competitive performance of a country, which is measured in terms of manufacturing value added per capita and manufacturing exports per capita.

The scorecard also takes note of industrialization, which suggests share of manufacturing value added in GDP and of medium and high technology in manufacturing.
UNIDO, in an accompanying statement said, that the scorecard brings out a persistent pattern of performance over the years among regional groupings of countries, with industrialized countries leading the rankings and transition economies tightly grouped in the middle ranks.

Singapore topped the ranking followed by Ireland, Switzerland, Japan, Belgium, Sweden, Finalnd, Germany, Republic of Korea, Taiwan, France, USA, Hong Kong SAR, Austria and Slovenia in the top 15. India although ranked 41st fared better than its neighbours with Pakistan ranking at 55, Bangladesh at 67 and Sri Lanka occupying the 75th position.

However, India made it to the top 15 automakers of the world, and among the top five in the leading developing countries category of a separate UNIDO report on motor vehicle manufacturers, thanks to a growing auto industry. According to the report, India ranked 12th in the list of world's top 15 automakers, which is led by Japan followed by the US and Germany. In the leading developing countries category, India ranked fourth. The list is topped by Mexico, followed by Korea, Iran. Brazil held the fifth position.

Also, Indian textile industry came fifth amongst top 15 textile producing countries in the world and India also made it to the list of world's top 15 producers of chemicals, electrical machinery, basic metals (iron and steel, non-ferrous metals) and other products.

3G Services & Number Portability to finally hit India; Delhi Mumbai circle tough challenge for Indian Telcos

India’s telecom subscribers are finally going to see the light of the much hyped and discussed 3G services and number portability. The government unveiled its plan to take India’s mobile revolution to the next technological level by opening 3G spectrum auctions to global players that would allow better multimedia services and also quick data and video transfer. Government also announced the first step towards number portability, a major consumer-friendly move that will let the users to switch their mobile operators without losing their numbers.

The 3G spectrum will be initiated in the next 15 days under the supervision of an independent agency to ensure full transparency, there would also be strict roll-out obligations to avoid spectrum hoarding. The Auction is expected to garner around Rs 30,000 cr (around $7 bn) to the government exchequer, a huge respite for the government during the current phase of rising global oil prices, huge subsidy payouts, double-digit inflation and slowing growth.
Currently the country has 60 Mhz of 3G spectrum available, the auction will take place in the 2.1 Ghz band, with 3G services likely to be available by the mid-2009. Initially, only two to five operators would be allowed to offer 3G services in each circle. However in the Delhi and Mumbai circles, only one operator would initially be allowed to offer 3G services, apart from State-owned MTNL due to spectrum crunch. Similarly, for the rest of the country the other government telecom giant, BSNL would get 3G spectrum. The base price for a pan-India license will be Rs. 2,020 cr for each bid, while UASL fee would be Rs. 1,650 cr.

The government also took concrete steps towards introduction of mobile number portability (MNP) by announcing guidelines for an MNP service licence. MNP would first start in the four metros in next two months and subsequently roll out in rest of the country over the next 6-12 months. According to the guidelines, the whole country will be divided into two MNP zones consisting of 11 service areas with two metros in each zone. The MNP service provider and the mobile operators would not be allowed to have equity (direct or indirect) stake in each other's operations. No single company/legal person/the MNP License applicant or MNP Licensee company either directly or indirectly will have any equity, in any of the telecom service provider (basic service, UAS, Cellular Mobile, NLD or ILD) and vice-versa.
The government would allocate the licenses for MNP soon and the eligible applicant should have an experience of operating successfully, number portability solution for a mobile subscriber base of not less than 25 mn in one or more countries for at least two years. The applicant company shall also be required to have a minimum paid up capital of Rs 10 cr on the date of application and a networth of Rs 100 cr. The applicant company or its share equity holders having direct equity of 26 per cent or more in the company should have the required experience. Also, the government has fixed one-time, non-refundable, entry fee of Rs 1 cr for the grant of MNP services license and the company shall have to pay annual license fee of one per cent of the Adjusted Gross Revenue. According to method of selection, the pre-qualified applicants/bidders shall be subjected to a "techno-economic Evaluation" for final selection. The MNP license shall be for a period of five years and can be extended by another five years by the Department of Telecom.

What is 3G?
3G represents the next step in the evolution of mobile telephony, offering markedly greater capacity and efficiency than the current 2G systems. While 2G is focused on voice, 3G supports high-speed data of at least 144 kbps enabling broadband internet access on the mobile, and ‘‘triple play’’ features like mobile TV and converged communication services.

What is MNP?
MNP allows subscribers the freedom to retain their mobile number while switching over to a different service provider. The system when implemented will allow consumers more choice, lower prices and significantly better quality of service.