First Three Quarters Of Indian M&As Top $26 Billion

--- Cash rich Indian companies’ overseas acquisitions worth $14 billion outpace their global counterparts that made acquisitions worth $8 billion in India

--- Infrastructure Sector Dominates Deal Street with transactions worth $12 Billion

--- Power, Oil & Gas top grosser with merger & acquisitions (M&As) worth $5 billion; Ninth India-EU Summit sets ground for future deals in Nuclear Energy

--- Banking & Financial Services and Pharmaceutical sectors follow with M&A deal values of more than $3 billion each

--- Overall M&As highlight the India-Europe corridor that witnessed 52% share in total cross-border deals worth $22 billion

Cash rich acquisitive Indian companies are set to make new acquisitions as target companies are significantly cheaper now than just six months ago. The cache of cash as an acquisition currency has also increased as global recessionary trends have driven stock prices worldwide to historic lows.

The acquisition of Citigroup's captive Business Process Outsourcing (BPO) arm Citigroup Global Services (CGSL) for $505 million by India’s largest IT services exporter Tata Consultancy Services - the largest buyout of a foreign captive BPO in India; the acquisition of the U.K.’s Imperial Energy Plc, one of the leading oil companies with assets in Russia by India’s ONGC Videsh Ltd, a subsidiary of India’s biggest explorer Oil & Natural Gas Corporation (ONGC) Ltd for $2.8 billion; the pending purchase of Axon Group Plc, the U.K.-based provider of SAP implementation consulting, that has invited rival bids from India’s second largest IT services company Infosys Technologies Ltd and HCL Technologies Ltd., are all manifestations of an M&A binge fueled by large cash reserves held by Indian companies.

Indian companies with a war chest of cash reserves, such as Infosys Technologies Ltd, India’s second largest IT services company, with reserves of about $2 billion; ONGC Ltd with similar reserves; Tata Sons, the holding company for all Tata Group’s investments, with reserves and surplus of more than $2.5 billion, among others, have become active acquirers in the market. This has happened as the US Standard & Poor's 500 Index has tumbled 33 percent in its worst yearly slump since 1937.

Infrastructure Dominates

Infrastructure-related industries dominated mergers and acquisitions (M&As), accounting for 45% of the deals at more than $11.8 billion of the total deal value of $26 billion this year to September.

“The traction in the infrastructure M&As is symbolic of the need for world class facilities, adoption of internationally applicable best practices, experienced global management expertise & technology applications to accelerate growth in the Indian economy. To get that resource base of incremental funds and expertise, part of the capital is expected to find its way in to mergers & acquisitions (M&As).” says Bundeep Singh Rangar, Chairman, IndusView Advisors Ltd, Europe’s fastest-growing Indian mergers and acquisitions firm.

The Indian government has responded to an urgent demand for new infrastructure targeting to spend 9% of the country’s GDP on infrastructure by 2012. Estimates suggest that a third of this investment will come from the private sector, presenting an unprecedented investment opportunity, with corresponding inorganic activity.

“The focus towards the sector is buoyed by the urgency to match global standards. This augmentation is expected to cost and attract investments to the tune of $500 billion over the next five years.” added Rangar

The power sector has been the main stay of the M&As this year within the infrastructure sector, which accounted for $5 billion, or 42% of the deal value in the infrastructure sector. The power sector commanded 19% share in the total M&A value of $26 billion this year compared with about $4 billion last year representing a 7.4% share of the total deal value of $51 billion.

The power sector witnessed two deals worth more than $1 billion – acquisition of the U.K.’s Imperial Energy Plc, one of the leading oil companies with assets in Russia by India’s state owned oil company ONGC Videsh Ltd, subsidiary of Oil & Natural Gas Corporation (ONGC) Ltd for $2.8 billion; and the acquisition of InterGen NV, a Dutch power company by Indian infrastructure company, GMR Infrastructure Ltd.

“The recently concluded ninth India-European Union summit in Marseille, France is expected to further accelerate the M&A activity in the power sector as it’s focus turned towards the potential of nuclear energy to the growth in trade between the two regions, which is targeted to reach €100 billion ($140 billion) over the next five years.” added Rangar

Among the infrastructure sectors, the power sector was followed by telecommunication sector that emerged the second most consolidating sector with $3.75 billion, a share of 32% in the infrastructure sector deal value and 14% share in the overall M&A deal value.

The other sectors which have significantly contributed to the M&A activity are Banking & Financial Services and Pharmaceutical sectors with M&A deal values of more than $3 billion each. These sectors were followed by the Automotive Sector with deal value of about $2.5 billion.

Some of the big ticket deals during the year to September included, the acquisition of

· The U.K.’s Imperial Energy Plc, one of the leading oil companies with assets in Russia by India’s state owned oil company ONGC Videsh Ltd, subsidiary of Oil & Natural Gas Corporation (ONGC) Ltd for $2.8 billion

· Jaguar and Land Rover, the U.K. based iconic marquees of the U.S.-based Ford Motor Company by India’s Tata Motors Ltd for $2.3 billion

· Tokyo-based pharmaceutical company Daiichi Sankyo Company Limited’s acquisition of Ranbaxy Laboratories Ltd, India’s largest pharma company for $2.4 billion

· HDFC Bank Ltd, one of India’s leading private sector banks acquisition of its domestic rival Centurion Bank of Punjab for $2.38 billion

· Investment $2 billion in Unitech Telecom, the telecom arm of India’s second largest real estate developer Unitech Ltd by Italy-based Telecom Italia SpA

Cross Border Deals

“Significant aspect of the M&A activity has been India Inc.’s eyes on global opportunities, which have become more prominent in the backdrop of the global recession.” explains Rangar

India Inc.’s overseas acquisitions (outbound) worth about $13.8 billion, outnumbering the value of acquisitions made by overseas companies in India (inbound) at more that $8.2 billion. Continuing the trend which peaked last year, cross border M&As this year too had a distinct European flavour.

Four of the big ticket overseas deals by Indian companies were in Europe. Acquisitions worth more than $2 billion were of Imperial Energy Plc and Jaguar & Landrover. The deals worth about $1 billion were acquisitions by Great Offshore, India's integrated offshore oilfield services provider of Cayman Island based SeaDragon Offshore Ltd; and the acquisition of InterGen NV, a Dutch power company by Indian infrastructure company, GMR Infrastructure Ltd.

Trade between India and Europe is expected to touch $100 billion by 2010 from current level of $80 billion, according to industry estimates. Acquisitions by Indian companies in Europe accounted for 58% of the total acquisitions made overseas. Europe also accounted for 45% of the inbound deals (deals by overseas companies in the country) in India, led by the acquisition of stake in Unitech Telecom by Telecom Italia.

The U.K. has been the main centre of investments with two of the big ticket deals of Imperial Energy Plc and Jaguar & Landrover by Indian companies. The third deal, that of Axon Group Plc, the U.K.-based provider of SAP implementation consulting, which features a competitive scenario between India’s second largest IT services company Infosys Technologies Ltd and its domestic rival HCL Technologies Ltd, is round the corner.

“Indian companies with their acquisitions of companies in the U.K. are increasingly seeking to harness the size and scale of global operations on one hand and unlock the potential in emerging economies on the other, exhibited by the acquisition of Jaguar and Land Rover, the U.K. based iconic marquees of the U.S.-based Ford Motor Company by Tata Motors Ltd; and the acquisition of the U.K.’s Imperial Energy Plc, one of the leading oil companies with assets in Russia by India’s state owned oil company ONGC Videsh Ltd, subsidiary of Oil & Natural Gas Corporation (ONGC) Ltd.” said Rangar

The U.K. has been the country of choice for overseas investments by Indian companies that invested $6 billion in the country during the first half of 2008. The investments by India Inc. in Britain during the fiscal year 2007-08 has created 3,846 jobs, ahead of its rival economy China that was involved in creating only 898 jobs, according to the U.K.’s Department of Trade and Industry. In terms of the number of new projects, India ranked seventh with 75 new projects, out-numbering China with 59 new projects.

RIGHT TIME FOR INVESTORS TO ACCUMULATE GREEN STOCKS

The oilfield of the future is not 200 feet deep below the surface. It is 96 million miles above the ground. This is not an understatement. High oil prices in the 1970s ended the era of crude oil as a source of electric power and kick-started the wind energy industry in Europe and elsewhere. Will the current regime of triple-digit crude oil prices begin the era of renewable energy?

The Economic Times

The IndusView Publication - Volume 3, Issue 6

Genpact IPO on NYSE

Genpact Ltd, India’s largest Business Process Outsourcing firm is expected to reach a market capitalization of about $3 billion, when it lists on the New York Stock Exchange later this year. That valuation is based on that of its peers, WNS (Holdings) Ltd and ExlService Holdings, which have already listed on U.S. exchanges.

The public offering will provide a healthy return to its principal investors, Oak Hill and General Atlantic, which invested $800 million for a 60% stake in the company two years ago. The remaining 40% is held by General Electric, which started Genpact as an in-house offshore facility 10 years ago.

IT: A $100 Billion Industry

India’s information technology (IT) and IT-enabled Services (ITeS) industry will be worth $100 billion by 2011 from about $48 billion in 2006, according to a report by IDC India, the Indian affiliate of Massachusetts-based market research firm IDC. The report suggests that the Indian IT industry will register a compound annual growth rate (CAGR) of 18% during these five years.

The estimate, however, seems conservative considering the 31% growth rate marked by the Indian IT industry in 2006. The industry, which has grown more than 30% annually for the past four years, according to the National Association of Software and Service Companies (NASSCOM), the industry body representing more than 1,100 Indian IT companies.

The IDC report suggested rising domestic sales, previously a weak segment. IDC forecasts IT & ITeS sales in India will grow at a CAGR of 20% to $41 billion in 2011 from $17 billion in 2006.

Indian Contenders

Indian companies are apparently better positioned to challenge the global blue-chip companies. Rating agency Standard & Poor’s (S&P) annual ‘Global Challengers List’ included eight Indian companies out of the 300 firms listed from 37 countries, compared with four companies from China. The list that identifies mid-size public listed companies exhibiting the strongest growth characteristics includes ACC Ltd., one of the oldest manufacturer of cement and ready mix concrete; Hotel Leela Venture Ltd, an Indian hotel company that owns four deluxe hotel in the cities of Mumbai, Bangalore, Kovalam and Goa; Jain Irrigation Systems Ltd, the country’s largest manufacturer of irrigation systems, pipes and fittings; Lakshmi Machine Works Ltd, one of the world’s leading manufacturers of textile spinning machinery; Marico Industries, one of the leading FMCG companies; Titan Industries, the world's sixth largest wrist watch manufacturer and part of the Tata Group, India's largest private sector business group; The Indian Hotels Company Ltd, a part of the Tata Group that operates Taj Hotels chain of luxury hotels.

Oil Tips a Perfect Balance

If India could discard its oil import bill, it will reach a perfect trade balance. During the fiscal year 2006-07, India's exports grew by 24% to reach at $125 billion, while non-oil imports increased to $124 billion from $99.5 billion during the same period. Its trade deficit, however, widened to $57 billion from $40 billion only due to the crude oil imports bill that rose by the same amount, i.e. $57 billion in 2006-07 from $44 billion in the previous year.

With the Indian economy estimated to grow at the rate of 8%-10% per annum in the coming years, the oil import bill will only increase as demand for energy rises to 200 Giga Watts by 2012 from the current installed capacity of 125 Giga Watts. It makes a clear case for large investments in alternative energy sources such as wind energy, nuclear energy and solar energy. Wind energy has added about 6,000 megawatts of power supply in the past five years, and it is estimated to create additional capacity of about 8,500 megawatts by 2012.

Large oil and gas discoveries announced by Reliance Industries Ltd., country's most valuable firm with a market value of $37.2 billion and Cairn India Ltd, subsidiary of Edinburgh, Scotland based Cairn Energy Plc strengthen India’s efforts to reduce dependence on oil imports.

Bundeep Singh Rangar
Chairman, IndusView
Bundeep.Rangar@IndusView.com
www.indusview.com
www.indusreal.com