SATYAM: ON THE PATH OF EVOLUTION
The fraud at India’s fourth largest software exporter, Satyam Computer Services Ltd, has kick started a Darwinian consolidation among top-tier Indian IT companies as they pitch for Satyam, in part or whole. The company is still reeling under the revelation of $2 billion fraud by its founder on January 7.
Various companies are in the fray to acquire the company either in part, depending on their core business, or in its entirety. These include, the IT arm of India’s largest engineering company Larsen & Toubro Ltd; fifth largest Indian IT company HCL Technologies Ltd; diversified conglomerate Essar Group; London-based diversified Indian conglomerate Hinduja Group; Indian IT company i-Gate Global Solutions; and Spice Group.
The Indian IT industry is in the next stage of evolution, which commenced with the emergence of a number of companies establishing themselves as industry leaders by virtue of expertise in a certain domain, big clients’ accounts and sheer geographical spread. What now follows is the second stage of evolution, that of, consolidation which will involve mergers and acquisitions (M&As) that will shrink the number of companies in the top tier.
A new wave of M&As will be triggered by the acquirer’s business objectives to expand into new markets and new customers, high-end intellectual property of either process technology or product technology and also to garner new skill sets.
Monday, February 16, 2009
INDIA, INC. VS ITS U.S. PEERS
A country’s stock market and the performance of the respective blue chip companies is often seen as the barometer of its economic health, and a gauge of investment sentiment. On that parameter, the Indian companies have outclassed its U.S. peers by a wide margin for the first time.
The total 30 companies on the Sensex, the benchmark index of the Bombay Stock Exchange of India, have shown average growth in net sales at 7.75% and a dip in net profit of 13.20% in the third quarter of the current financial year. This is in sharp contrast to the U.S. Standard & Poor’s 500 companies’ profits declining by about 35% on an average, during October-December 2008. This is the sixth consecutive quarter when the profits of the U.S. companies declined, compared to the first quarterly fall in the aggregate profits for the Sensex companies in the recent years.
The robust performance by Indian companies could help explain the optimistic outlook of the Government that estimates Foreign Direct Investments (FDI) for next financial year to reach $40 billion, twice the amount received during the first half of the current financial year.
A country’s stock market and the performance of the respective blue chip companies is often seen as the barometer of its economic health, and a gauge of investment sentiment. On that parameter, the Indian companies have outclassed its U.S. peers by a wide margin for the first time.
The total 30 companies on the Sensex, the benchmark index of the Bombay Stock Exchange of India, have shown average growth in net sales at 7.75% and a dip in net profit of 13.20% in the third quarter of the current financial year. This is in sharp contrast to the U.S. Standard & Poor’s 500 companies’ profits declining by about 35% on an average, during October-December 2008. This is the sixth consecutive quarter when the profits of the U.S. companies declined, compared to the first quarterly fall in the aggregate profits for the Sensex companies in the recent years.
The robust performance by Indian companies could help explain the optimistic outlook of the Government that estimates Foreign Direct Investments (FDI) for next financial year to reach $40 billion, twice the amount received during the first half of the current financial year.
BANKABLE INDIA
A strong economy rests on the foundation of sound financial institutions. The Indian economy’s relatively firm footing (see Issue 4 | Volume 1) in the face of turbulent global economic conditions, is also attributable to its financial institutions. While some of the global financial institutions Lehman Brothers Holdings Inc., the Federal National Mortgage Association, Wachovia Corporation, Merrill Lynch & Co., Inc. among others either had to be salvaged or simply cease to exist; 19 Indian financial institutions have made it among the Top 500 Global Financial Brands 2009, released by Brand Finance Plc, in association with U.K.'s The Banker magazine.
Among the 19 Indian financial institutions that have reported an average 35% growth in interest income and a higher 42% jump in net profit for the quarter ended December 2008, 13 new entrants in the Top 500 list this year are state-run organizations highlighting prudential banking norms efficiently steered by the country’s central bank, The Reserve Bank of India (RBI).
However, RBI disappointed the industry by falling short of announcing in its Credit Policy on January 27, any move toward a lower interest regime to boost demand, which was widely expected as an appropriate method to stem the economic downturn. The expectation of further rate cuts was bolstered by the RBI’s own assessment of inflation going down to 3% by March 2009 from the current 6% and a peak of 13% in August 2008.
The government did offer reasons to cheer as it announced cuts in prices of petroleum products twice in the last two months, a decision which will further help contain inflation and lubricate the wheels of the economy.
A strong economy rests on the foundation of sound financial institutions. The Indian economy’s relatively firm footing (see Issue 4 | Volume 1) in the face of turbulent global economic conditions, is also attributable to its financial institutions. While some of the global financial institutions Lehman Brothers Holdings Inc., the Federal National Mortgage Association, Wachovia Corporation, Merrill Lynch & Co., Inc. among others either had to be salvaged or simply cease to exist; 19 Indian financial institutions have made it among the Top 500 Global Financial Brands 2009, released by Brand Finance Plc, in association with U.K.'s The Banker magazine.
Among the 19 Indian financial institutions that have reported an average 35% growth in interest income and a higher 42% jump in net profit for the quarter ended December 2008, 13 new entrants in the Top 500 list this year are state-run organizations highlighting prudential banking norms efficiently steered by the country’s central bank, The Reserve Bank of India (RBI).
However, RBI disappointed the industry by falling short of announcing in its Credit Policy on January 27, any move toward a lower interest regime to boost demand, which was widely expected as an appropriate method to stem the economic downturn. The expectation of further rate cuts was bolstered by the RBI’s own assessment of inflation going down to 3% by March 2009 from the current 6% and a peak of 13% in August 2008.
The government did offer reasons to cheer as it announced cuts in prices of petroleum products twice in the last two months, a decision which will further help contain inflation and lubricate the wheels of the economy.
Monday, January 26, 2009
INDIAN TELECOMMUNICATION SECTOR: AN ATTRACTIVE INVESTMENT DESTINATION
At a time when the economies globally are witnessing recessionary trends and mobile handset manufacturing companies are cutting their projections of handset sales in 2009, the Indian telecom industry continues to ring aloud with multi-billion dollar deals. Mega investment plans for India are being drafted by overseas telecom service providers, as they seek to participate in the world’s fastest growing mobile telecom market.
Deal Buzz Continues
The Indian telecommunication sector with total deal value of $5.8 billion garnered the maximum share of 19% in the overall merger and acquisitions (M&A) in 2008. The sector started the year 2009 on a high note with the country’s first mega deal announced. Quippo Telecom Infrastructure Ltd., the telecommunication infrastructure arm of India’s largest the infrastructure equipment rental company, Quippo Infrastructure Equipment Limited has announced signing a deal with India’s sixth largest mobile telecom service operator Tata Teleservices Ltd to buy 49% stake in its subsidiary Wireless-TT Info-Services Ltd. (WTTIL) for about $500 million (Rs.24 billion). Quippo Telecom is a part of SREI Group having diversified interests in areas such as infrastructure, capital market services and financial services. Under the arrangement, Quippo and WTTIL will merge their operations comprising about 5,000 and 13,000 telecom towers respectively. Tata Teleservices will have the 51% majority stake in the merged entity.
Earlier, NTT DoCoMo Inc., the largest mobile service operator of Japan, bought 26% stake in Tata Teleservices Limited (TTSL), a part of India’s largest industrial conglomerate Tata Group. The $2.7 billion deal is the largest in the Indian telecom market since early 2007, when Vodafone Group Plc, the U.K. based world’s largest mobile telecommunications network company had acquired 67% stake in Hutchison Essar Ltd (now Vodafone Essar) for $11.1 billion. TTSL stake provides NTT DoCoMo an instant presence across India along with a well-established nationwide mobile network and a subscriber base of more than 30 million. The NTT DoCoMo – TTSL deal, values the company at more than three times of what it commanded three years ago. Temasek Holdings, the investment arm of the government of Singapore, had picked up a 9.9% stake in TTSL at a valuation of about $3 billion in early 2006.
So much is the attraction of this market that even the new entrants, which are yet to role out their network and win their first subscriber, are commanding billion dollar-plus valuations. Telenor ASA, the biggest Nordic telephone company, has signed a deal with India’s second largest real estate company Unitech Ltd to buy 60% of its wireless arm Unitech Wireless (UW) for $1.07b billion (including $400 million debt) on October 29, 2008. UW has the licenses for all 23 telecom circles of India, enabling it to have a nation-wide footprint. UAE-based Emirates Telecommunications Corporation (Etisalat) has acquired a 45% stake in Swan Telecom for $900 million, valuing the company at $2 billion in September 2008. Swan, a part of Mumbai-based real estate and hospitality business house Dynamix Balwas (DB) Group, has secured licenses for 13 circles (two more licenses in process) out of the total 23 circles.
More To Follow:
Telecom has been an active sector in India in terms of M&A deals in the last six-seven years. Yet, we can expect many more equity deals to take place sooner or later. The rush of overseas telecom companies will continue, as they are facing saturated markets at home, while the Indian market has a huge potential for further growth.
The prominent overseas telecom companies that are seeking an entry in to the lucrative Indian market include a number of Middle-East and European service providers such as Qatar Telecom, Kuwait-based Zain Group, Bahrain Telecom, Italy-based Telecom Italia SpA, a leading Turkish telecom company Turkcell etc. South Africa’s MTN Group has also been interested in acquiring, or being acquired by, or merge with an Indian company.
Acquiring a stake in an existing Indian company is the only certain way of entry in the Indian market, and the other option available right now is to participate in the auction for 3G services, which are expected to happen very soon.
The Government of India has set a target of 45% tele-density compared with the current level of 31.50%. The government has estimated that the telecom sector will need $73 billion during the next five years to achieve the target of 45% tele-density, and a major chunk of the required investment is expected to come through Foreign Direct Investment (FDI) inflow, which has gone up to $1261 million in 2007-08 from $478 million in 2006-07.
What Makes Indian Telecom Sector Attractive?
Despite the gloomy outlook owing to the global recession/slowdown in the economy, the telecom sector of India continues to attract record number of new subscribers. The Indian mobile phone operators have been adding about 8-10 million subscribers every month through out this year, and the figure has regularly topped the 10 million mark during the last three-four months. Considering the current pace of fresh additions per month, India has the potential of taking the total tally of subscribers to 700 million in the next five years from the current level of about 350 million, second only to China. About 10.35 million wireless subscribers were added during the month of November 2008, taking the total number to 336.08 million and a similar number was expected during the month of December 2008. The total number of both wireless and wireline subscribers reached at 374.13 million at the end of November 2008, according to the Indian telecom industry regulator, Telecom Regulatory Authority of India (TRAI).
In terms of projected revenues, such a huge subscriber base is expected to generate more than $37 billion by 2012 growing at a CAGR (compounded annual growth rate) of 18%. This growth potential offers enough incentive to overseas telecom companies to vie for their share of the pie. Investor-friendly regulations by the government, allowing up to 74% holding in a domestic entity by a foreign company, is an icing on the cake.
- Potential to achieve 700 million telecom subscribers by 2012 from 374 million currently
- Mobile subscribers at 350 million, second only to China
- High on M&As - NTT DoCoMo acquires 26% stake in Tata Teleservices for $2.7 billion; Telenor buys 60% of Unitech Wireless for $1.07 billion
- Launch of New Platforms : Auction for 3G services soon
At a time when the economies globally are witnessing recessionary trends and mobile handset manufacturing companies are cutting their projections of handset sales in 2009, the Indian telecom industry continues to ring aloud with multi-billion dollar deals. Mega investment plans for India are being drafted by overseas telecom service providers, as they seek to participate in the world’s fastest growing mobile telecom market.
Deal Buzz Continues
The Indian telecommunication sector with total deal value of $5.8 billion garnered the maximum share of 19% in the overall merger and acquisitions (M&A) in 2008. The sector started the year 2009 on a high note with the country’s first mega deal announced. Quippo Telecom Infrastructure Ltd., the telecommunication infrastructure arm of India’s largest the infrastructure equipment rental company, Quippo Infrastructure Equipment Limited has announced signing a deal with India’s sixth largest mobile telecom service operator Tata Teleservices Ltd to buy 49% stake in its subsidiary Wireless-TT Info-Services Ltd. (WTTIL) for about $500 million (Rs.24 billion). Quippo Telecom is a part of SREI Group having diversified interests in areas such as infrastructure, capital market services and financial services. Under the arrangement, Quippo and WTTIL will merge their operations comprising about 5,000 and 13,000 telecom towers respectively. Tata Teleservices will have the 51% majority stake in the merged entity.
Earlier, NTT DoCoMo Inc., the largest mobile service operator of Japan, bought 26% stake in Tata Teleservices Limited (TTSL), a part of India’s largest industrial conglomerate Tata Group. The $2.7 billion deal is the largest in the Indian telecom market since early 2007, when Vodafone Group Plc, the U.K. based world’s largest mobile telecommunications network company had acquired 67% stake in Hutchison Essar Ltd (now Vodafone Essar) for $11.1 billion. TTSL stake provides NTT DoCoMo an instant presence across India along with a well-established nationwide mobile network and a subscriber base of more than 30 million. The NTT DoCoMo – TTSL deal, values the company at more than three times of what it commanded three years ago. Temasek Holdings, the investment arm of the government of Singapore, had picked up a 9.9% stake in TTSL at a valuation of about $3 billion in early 2006.
So much is the attraction of this market that even the new entrants, which are yet to role out their network and win their first subscriber, are commanding billion dollar-plus valuations. Telenor ASA, the biggest Nordic telephone company, has signed a deal with India’s second largest real estate company Unitech Ltd to buy 60% of its wireless arm Unitech Wireless (UW) for $1.07b billion (including $400 million debt) on October 29, 2008. UW has the licenses for all 23 telecom circles of India, enabling it to have a nation-wide footprint. UAE-based Emirates Telecommunications Corporation (Etisalat) has acquired a 45% stake in Swan Telecom for $900 million, valuing the company at $2 billion in September 2008. Swan, a part of Mumbai-based real estate and hospitality business house Dynamix Balwas (DB) Group, has secured licenses for 13 circles (two more licenses in process) out of the total 23 circles.
More To Follow:
Telecom has been an active sector in India in terms of M&A deals in the last six-seven years. Yet, we can expect many more equity deals to take place sooner or later. The rush of overseas telecom companies will continue, as they are facing saturated markets at home, while the Indian market has a huge potential for further growth.
The prominent overseas telecom companies that are seeking an entry in to the lucrative Indian market include a number of Middle-East and European service providers such as Qatar Telecom, Kuwait-based Zain Group, Bahrain Telecom, Italy-based Telecom Italia SpA, a leading Turkish telecom company Turkcell etc. South Africa’s MTN Group has also been interested in acquiring, or being acquired by, or merge with an Indian company.
Acquiring a stake in an existing Indian company is the only certain way of entry in the Indian market, and the other option available right now is to participate in the auction for 3G services, which are expected to happen very soon.
The Government of India has set a target of 45% tele-density compared with the current level of 31.50%. The government has estimated that the telecom sector will need $73 billion during the next five years to achieve the target of 45% tele-density, and a major chunk of the required investment is expected to come through Foreign Direct Investment (FDI) inflow, which has gone up to $1261 million in 2007-08 from $478 million in 2006-07.
What Makes Indian Telecom Sector Attractive?
Despite the gloomy outlook owing to the global recession/slowdown in the economy, the telecom sector of India continues to attract record number of new subscribers. The Indian mobile phone operators have been adding about 8-10 million subscribers every month through out this year, and the figure has regularly topped the 10 million mark during the last three-four months. Considering the current pace of fresh additions per month, India has the potential of taking the total tally of subscribers to 700 million in the next five years from the current level of about 350 million, second only to China. About 10.35 million wireless subscribers were added during the month of November 2008, taking the total number to 336.08 million and a similar number was expected during the month of December 2008. The total number of both wireless and wireline subscribers reached at 374.13 million at the end of November 2008, according to the Indian telecom industry regulator, Telecom Regulatory Authority of India (TRAI).
In terms of projected revenues, such a huge subscriber base is expected to generate more than $37 billion by 2012 growing at a CAGR (compounded annual growth rate) of 18%. This growth potential offers enough incentive to overseas telecom companies to vie for their share of the pie. Investor-friendly regulations by the government, allowing up to 74% holding in a domestic entity by a foreign company, is an icing on the cake.
OUTLOOK 2009
India is among the top 10 countries with an optimistic economic outlook for year 2009, according to a year end poll conducted by a global market information company TNS Gallup International. Two out of five people expected the coming year to be better than 2008.
The optimistic outlook mirrors the expected growth in the various sectors including India’s Information Technology sector, which is on track to achieve its aspired target of $60 billion in software and services exports and $75 billion in overall software and services revenues by 2010. Consumer finance sector at $45 billion in India that grew by 28% last year is expected to maintain its growth with the revival of the housing loans segment owing to the government's initiative of extending lower interest rates. The healthcare sector is expected to grow to about $75 billion by 2012 from the present $35 billion market size. The sector growing at 42% annually, accounts for 5.2% of the GDP, making it the third largest growth industry in India.
The $34 billion Indian automotive sector is expected to continue to grow at more than 15% as oil prices dip and companies announce the launch of new vehicles. The world's fastest-growing mobile phone market that adds more than 9 million new customers each month is driving the $31 billion telecom industry to be worth $54 billion in 2012. See ‘Special Report’ on the Indian Telecommunication sector.
Domestic growth is expected to attract and benefit from foreign direct investment (FDI) of $40 billion in the next financial year, which is twice the amount received during the first half of the current financial year.
Such growth forecasts, however, are accompanied by challenges that might just derail the country from its growth trajectory. These include internal pressure groups as in the case of the Indo-U.S. nuclear agreement that witnessed intense opposition by the Left Parties within India’s ruling coalition government called the United Progressive Alliance (UPA). Similarly, the delay in the small car project of Tata Motors’ ‘Nano’ due to widespread unrest from a regional political party led to the project being scrapped from its original site in Singur, in the east Indian state of West Bengal compounds existing impediments of slow infrastructure development, widespread illiteracy, poverty and corruption - impediments India must overcome if it wants to sustain and accelerate its economic growth.
INDIA: POWER HOUSE OF GLOBAL GROWTH
India is predicted to register GDP growth of about 7.5% this financial year, a drop from 9% that the country achieved last year. In contrast, however, global economic growth is projected to have shrunk to 3.7% in 2008 from about 5% the previous year, according to estimates of the International Monetary Fund. An earlier study by the Economic Intelligence Unit suggested India will contribute more than 12% toward global economic growth by 2020 from approximately 5% in 2006.
This is also a reflection of the ‘Decoupling Theory’ for the emerging markets, particularly in Asia, which are less dependent on developed markets. Growth deceleration was much less marked in emerging markets in the first half of 2008 than in developed markets, according to Morgan Stanley, the U.S. based global financial services firm. It forecast developed market growth to slow to 1% in 2009 from 2.5% in 2007 while emerging markets to slow to 6.6% from 7.8% for the same period.
Foreign companies invested more than $12 billion in acquiring Indian companies in 2008, slightly less than the $15 billion a year earlier. Indian companies reciprocated by investing a near similar amount in acquiring companies overseas. See Mega Deals ‘Top 20’ Deals of the year 2008.
INDIA CHALLENGED AS MUMBAI TERROR STRIKES & SATYAM LIES
At a time when the world’s second-fastest growing economy is seen by many economists to be pivotal in reversing the global recession, two events negatively rocked India. The country’s commercial capital Mumbai was attacked by terrorists on November 26, 2008. That was followed on January 7, by a shocking revelation of a $2 billion fraud by the founder of India’s fourth largest IT Services company, Satyam Computer Services Ltd.
Mumbai is one of the world's top 10 centres of commerce and contributes about 5% of India's GDP, 25% of industrial output, 40% of maritime trade and 70% of capital transactions to the economy. Its per-capita income is almost three times the national average, though wide disparities exist among its 14 million population.
Each time the city has been targeted, however, it rebounds strongly and resolutely. Some view this as an apt representation of India’s underlying strength as a culturally-rich democracy and increasingly capitalist economy. On the first day of trading after the attacks, the Bombay Stock Exchange’s benchmark Sensex Index closed three quarters of a percent higher at 9097.92.
The Satyam incident, involving the misreporting of accounts, has put a dent in an otherwise widely acknowledged and respected corporate governance, quality and value of Indian companies. While India has a well-knit regulatory framework and institutions to ensure compliance, it is clear that they have been insufficient in preventing what is being dubbed as “India’s Enron.”
At a time when the world’s second-fastest growing economy is seen by many economists to be pivotal in reversing the global recession, two events negatively rocked India. The country’s commercial capital Mumbai was attacked by terrorists on November 26, 2008. That was followed on January 7, by a shocking revelation of a $2 billion fraud by the founder of India’s fourth largest IT Services company, Satyam Computer Services Ltd.
Mumbai is one of the world's top 10 centres of commerce and contributes about 5% of India's GDP, 25% of industrial output, 40% of maritime trade and 70% of capital transactions to the economy. Its per-capita income is almost three times the national average, though wide disparities exist among its 14 million population.
Each time the city has been targeted, however, it rebounds strongly and resolutely. Some view this as an apt representation of India’s underlying strength as a culturally-rich democracy and increasingly capitalist economy. On the first day of trading after the attacks, the Bombay Stock Exchange’s benchmark Sensex Index closed three quarters of a percent higher at 9097.92.
The Satyam incident, involving the misreporting of accounts, has put a dent in an otherwise widely acknowledged and respected corporate governance, quality and value of Indian companies. While India has a well-knit regulatory framework and institutions to ensure compliance, it is clear that they have been insufficient in preventing what is being dubbed as “India’s Enron.”
Friday, January 16, 2009
ASIA PACIFIC M&A SPREE TO REMAIN BUOYANT IN 2009
Notwithstanding the global financial turmoil, the mid-market merger and acquisition activity in the Asia-Pacific region is likely to remain buoyant this year on attractive valuations.
The Economic Times
Notwithstanding the global financial turmoil, the mid-market merger and acquisition activity in the Asia-Pacific region is likely to remain buoyant this year on attractive valuations.
The Economic Times
INDIA INC ON THE PROWL FOR ACQUISITIONS
After a relative lull, India Inc is showing renewed interest in cracking deals. December 2008 suddenly saw a flurry of outbound M&A activity. Piramal Healthcare, Wipro and Rolta led the way with acquisitions ranging from $10 million (Rs 48.7 crore) to $127 million (Rs 618 crore).
SIFY - Business Today
After a relative lull, India Inc is showing renewed interest in cracking deals. December 2008 suddenly saw a flurry of outbound M&A activity. Piramal Healthcare, Wipro and Rolta led the way with acquisitions ranging from $10 million (Rs 48.7 crore) to $127 million (Rs 618 crore).
SIFY - Business Today
SATYAM'S LOSS COULD BE TCS' GAIN
One company’s misfortune might well be another’s opportunity. It is widely believed that many scam-hit IT firm Satyam Computer’s clients will migrate to competitors such as Infosys, Tata Consultancy Services (TCS) and Wipro, over a period of time.
TCS is likely to garner maximum revenue from Satyam Computer’s pie as it has the highest client overlap with the latter. Infosys, it says, would perhaps gain less than Wipro, given its lower client overlap and greater selectivity.
The Economic Times
One company’s misfortune might well be another’s opportunity. It is widely believed that many scam-hit IT firm Satyam Computer’s clients will migrate to competitors such as Infosys, Tata Consultancy Services (TCS) and Wipro, over a period of time.
TCS is likely to garner maximum revenue from Satyam Computer’s pie as it has the highest client overlap with the latter. Infosys, it says, would perhaps gain less than Wipro, given its lower client overlap and greater selectivity.
The Economic Times
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