Mega deal bolsters pan-India telecommunications

In their first business transaction since 2005, Mukesh Ambani’s (RIL) optical fibre sharing agreement with Anil Ambani’s (RCom) has been seen as a positive deal by most brokerage firms and analysts. The deal will allow RIL the usage of RCom’s Optical Fibre Cable (OFC) across120, 000 km for Rs 1,200 crore which will be paid by RIL’s subsidiary, Reliance Jio Infocomm Ltd as a onetime fee. It will also grant access to RCom for using Reliance Jio’s optic-fibre infrastructure in the future.

[highlight] What does it mean for RIL?[/highlight]

According to the Goldman Sach’s report, factors like a faster time-to-market for the 4G LTE services, lesser non-core capex and diluting cash returns on the medium term will allow 82% of RIL’s $ 29 billion capex, in the next five years, on core energy related businesses which will boost the cash return to 230bps. According to Ashish Jagnani of UBS, a firm GRM and an improved E&P value will enhance RIL’s stock performances. Even a moderate success in the telecom sector could add a staggering increase by Rs 34/share. However, low refining margins and weak petro-chemical margins can be the risk that RIL will have to encounter.

[highlight] How does RCom gain?[/highlight]

The RJio-RCom telecom deal will be beneficial for RCom as it will help in monetising its assets thus reducing the leverage in its balance sheets, especially since RIL is a net cash company, according to the Edelweiss Brokerage. Analysts believe that though this deal will not be significant in reducing RCom’s debt ($7 billion), it increases the potential of future of other deals, which will collectively help in reducing the debt. The deal also potentially increases the annual income in its tower department managed by Reliance Infratel, which has 50,000 towers.

Since the deal had been announced, shares of both Bharti Airtel and Idea Cellular have fallen. Noamura brokerage says that having another financially strong pan-India telecom operator will hardly be good news to the existing operators and have asked investors to stay out of buying their stocks.

Who’s the bigger winner?

In their first business transaction since 2005, Mukesh Ambani’s (RIL) optical fibre sharing agreement with Anil Ambani’s (RCom) has been seen as a positive deal by most brokerage firms and analysts. The deal will allow RIL the usage of RCom’s Optical Fibre Cable (OFC) across120, 000 km for Rs 1,200 crore which will be paid by RIL’s subsidiary, Reliance Jio Infocomm Ltd as a onetime fee. It will also grant access to RCom for using Reliance Jio’s optic-fibre infrastructure in the future.

 

What does it mean for RIL?

According to the Goldman Sach’s report, factors like a faster time-to-market for the 4G LTE services, lesser non-core capex and diluting cash returns on the medium term will allow 82% of RIL’s $ 29 billion capex, in the next five years, on core energy related businesses which will boost the cash return to 230bps. According to Ashish Jagnani of UBS, a firm GRM and an improved E&P value will enhance RIL’s stock performances. Even a moderate success in the telecom sector could add a staggering increase by Rs 34/share. However, low refining margins and weak petro-chemical margins can be the risk that RIL will have to encounter.

 

How does RCom gain?

The RJio-RCom telecom deal will be beneficial for RCom as it will help in monetising its assets thus reducing the leverage in its balance sheets, especially since RIL is a net cash company, according to the Edelweiss Brokerage. Analysts believe that though this deal will not be significant in reducing RCom’s debt ($7 billion), it increases the potential of future of other deals, which will collectively help in reducing the debt. The deal also potentially increases the annual income in its tower department managed by Reliance Infratel, which has 50,000 towers.

 

Since the deal had been announced, shares of both Bharti Airtel and Idea Cellular have fallen. Noamura brokerage says that having another financially strong pan-India telecom operator will hardly be good news to the existing operators and have asked investors to stay out of buying their stocks.

Pepsi Gets Into Shape

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Pepsi is introducing a new shape for its 567-gram bottle for the first time in 17 years. The new bottle is designed to enhance the grip. Pepsi Co has said it will take at least two years before the new bottles replace the existing.

For more info- http://www.huffingtonpost.com/2013/03/22/pepsi-new-bottle-20-ounce_n_2927549.html

Pune shifts to top gear as an industrial hub

Pune, Maharashtra’s second largest city after Mumbai, has been a hub for the engineering industry for over five decades. But it is in the last two odd decades that it has seen a virtual metamorphosis, evolving from a quiet peaceful town that offered harried Mumbaikars a pleasant weekend getaway to a mini metro bustling with industrial activity.

With global recession now having faded to being nothing more than a bitter memory, the one city that has bounced back with a firmer resolve than ever for brisk growth is Pune. Today, Pune wears many caps — leading IT destination, logistics hub and a renowned centre for the auto, design and white goods industries, amongst others. The arrival of the automobile and information technology giants in Pune has given the city a ‘hub’ branding that will drive its growth at a faster rate.

Mritunjay Singh, President, Hinjewadi Industries Association, says, “Post recession, many global players are setting up base in India and Pune is a natural choice. Pune being an open city that welcomes emigrants and it being an educational hub and a good talent pool gives the city an edge over the others.”

On the industrial front, the progress first began with the setting up of Kirloskar Oil Engines, Tata Motors and Bajaj Auto in the 1950s and 1960s. The Swedish Group Sandvik Asia, Atlas Copco, Alfa Laval, SKF Bearings followed suit and were amongst the earliest settlers on the erstwhile two-lane Bombay-Poona Road.  Industrial activity grew gradually as more units were established, including Finolex Cables, Forbes Marshall, the now defunct Garware Nylons and Bajaj Tempo (now Force Motors), amongst others on the same stretch. The road itself is now a wide four-lane boulevard with a series of underpasses and fly-over bridges to ensure a smooth, unhindered drive from the city centre to its industrial outskirts. According to Dr Abhay Firodia, President, Mahratta Chamber of Commerce Industries and Agriculture (MCCIA) and Chairman, Force Motors Ltd, “The period between 2006 and 2008 was the best of its kind for Pune when around Rs 12,000 crore was spent on projects in the region. And now we may see an inflow of around Rs 40,000 crore for the period between 2008 and 2013.”

Pune is the toast of the season as it is being hailed as the fastest growing industrial hub with both manufacturing and IT sector fuelling its popularity as a preferred industrial destination. Entrepreneurial history, location, education levels, work culture and climate are some of the elements that have ensured that Pune has and will continue to be the premium choice as a business destination. In the past year, several global automobile companies have announced new projects in India. Many of these are being located near Pune, a clear indication of the city’s emergence as a global automotive manufacturing hub. Global companies such as General Motors, Daimler AG, Volkswagen AG, Tata-Fiat, International Truck and Engine Corporation (ITEC), Piaggio Vehicles, Hyundai Heavy Industries have recently set up manufacturing operations in the Pune region. The presence of a strong local component manufacturing industry has obviously been a crucial factor in determining their choice of location. Equally important is the availability of high-quality, skilled knowledge resources that is attracting these global companies.

Elaborating on General Motors’ choice of Pune as the location of its second plant in India, Saurabh Vats, Vice-President, Marketing Manager, says, “Pune has a large supplier base. When we start exporting, the Nhava Sheva port is just two hours’ drive away. Also, the western region is our second-largest market after the north, and logistically, this plant can cater to both southern and northern markets.” General Motors, which already has a plant at Halol, has an investment outlay of Rs 1,400 crore at Talegaon, and will look at global sourcing from India.

 

What has also helped is the presence of the Automotive Research Association of India (ARAI) in Pune which is India’s premier automotive R&D, testing, and certification organisation. It has now tied up with TUV Rheinland, a 130-year-old German multinational and one of the world’s largest testing, inspection, and certification agencies, to offer testing and homologation solutions to the Indian and international automotive industry.

With this association, the Indian manufacturers will have an edge in exports of vehicles and vehicle parts as all the aspects of testing and certification as per international standards like EEC/ECE will be handled locally by qualified experts. And even as the MNCs are zeroing in on Pune, there are local companies, which are now actively entering into collaborations to give the city a true global positioning. For instance, Pune-based Electro-Mech, industrial crane manufacturer and customised material handling solutions provider, has entered into an agreement with the US-based manufacturer Shuttlelift to extend its offerings to the construction and material handling industry.

Providing a reason for why Pune has emerged as the ‘chosen one’, Mukesh Malhotra, former president of the MCCIA, says that it can also be attributed to the presence of other companies such as Bharat Forge, which is among the top forging companies in the world and Sandvik’s large cutting tools facility, not to forget other big industrial establishments such as Thermax, Kirloskar Oil Engines, Mather & Platt, Praj Industries, Sulzer India, and so on. The easy availability of skilled manpower is another factor. “There must be more than a lakh engineers working in and around Pune in clusters developed by the Maharashtra Industrial Development Corporation (MIDC) at Pimpri-Chinchwad, Chakan, Ranjangaon, and Talegaon.

That Pune is gaining strength from the arrival of MNCs is also evident from associated developments. Consider, for example, the fact that Tata Motors and the Government of Maharashtra have signed a Memorandum of Understanding (MoU) to facilitate the proposed expansion of manufacturing plants and setting up of vehicle testing facilities here. Fresh investments seem to pour in regularly. Among the most recent such announcements is that of food processing and packaging company Tetra Pak that has decided to establish a new processing and packaging plant at Chakan in Pune with a total investment of Rs 600 crore to meet the continuously increasing market demands in India and abroad.

What has added a boost to the city’s growth factor is the buoyancy of the special economic zones (SEZs). Pune will have SEZ-notified zones in Manjiri, Phase III Hinjewadi, Kharadi and Magarpatta and will be home to the first Biotech Park by the Poonawalla Group.

But this is not to say that there are no road bumps ahead. The infrastructure in Pune has definitely not been able to keep pace with its industrial growth so that local transportation, the lack of an international airport, power shortages, increasing congestion, and alarming levels of pollution are some of the issues that need to be addressed urgently.

“The civic governance of Pune needs to be improved immediately or else the pace of growth might suddenly be axed if the city cannot take the pressure any more. And yes, an international airport is certainly needed but with the government unable to decide about the location, the probability of it happening soon is now becoming remote” says Pulok Gupta, Managing Director, Liebherr India.

 

The choking Indian Economy

What Manmohan Singh say to defend himself and his Government? What’s his excuse going to be? Will his political partner, Mrs. Sonia Gandhi continue to shield him? These questions need to be answered. The fact being that he is India’s third longest serving prime minister after Jawaharlal Nehru and Indira Gandhi. Unlike them, Singh, an economist by training, did not inherit a shaky economy. When Singh assumed office in 2004 the economy was growing at 8.1 per cent, the fastest in 14 years. However, the present economic scenario in 2013 isn’t that rosy.  The economy is expected to grow at just five per cent this year. The present economic gloom can be judged from the fact that the current fiscal could be the worst in a decade. The country’s gross domestic product (GDP) grew at 5.3 per cent in the second quarter ended September 2012 compared with 5.5per cent in the first quarter of the fiscal ending March 2013.

This slowdown should be a wake up call to the Manmohan Singh’s government, who has been skirting the issue pertaining to the downside of the Indian economy. It is the urban middle class who is affected the most by this slowdown. On one hand, inflation eats up all the real returns from their savings and on the other there is stagnation in job opportunities .What is even more devastating for the millions of Indians is that the country’s per-capita income is growing at just 2.9 percent a year.

India’s current economic woes should be a cause of worry to the other nations in the word, as they require India to play a major role in the global economic scene. The economic troubles of Europe and the United States have had an adverse impact on India’s growth. However, the current problems of India are largely attributed to the passivity of the Manmohan Singh government.

A major barrier in India’s economic progress is that there are not enough investments. The revival of economic growth from its current level of 5 per cent to its potential of about 7 per cent depends on a higher rate of growth in investments. With foreign investors like Uninor suddenly shutting shop in Mumbai and pulling out of the market, it is the common man who has to bear the brunt. Another barrier in the FDI flow is retrospective amendments to tax laws. This issue has been starkly highlighted case of the British telecom major Vodafone’s investment in India. Even though the Supreme Court struck down the income tax department’s claim of $2.2 billion as capital gains charge on Vodafone’s purchase of two-third stake in the Hutchinson Essar for $11.2 billion in 2007, the government has once again moved the Supreme Court seeking a review of its earlier judgment. This has alarmed foreign investors. After Vodafone, it’s now the turn of Shell to face the taxman. The income tax office has slapped  a notice on Anglo-Indian oil company, claiming it had underpriced a share sale to its parent company in 2009.The tax department has proposed an adjustment of 155 billion. Shell has termed this demand has outrageous and plans to challenge the taxmen. The Government must realize that keeping investors guessing over tax and capital gain laws is bound to strike a blow for FDI in India.

According to the International Monetary Fund, India’s problems are largely of its own making. The slowdown is mainly led by falling infrastructure and corporate investment.  In the last two years we have witnessed a moderation in growth , driven by both domestic as well as global factors. There has been a slowdown in investments in infrastructure, with projects facing issues regarding environment clearances, land acquisition  and fuel availability. On the inflation front, oil and fuel prices have remained elevated and volatile. Persistently high inflation has resulted in a tightening of a domestic monetary policy which has in turn dampened domestic demand. The moderation in domestic growth and increased global risk aversion have made capital flows volatile, resulting in depreciation in the currency.

Due to globalization, economic problems in one part of the world can be transmitted to the rest of the world. The recent global recession showed how the five systematically important economies-the Euro-zone, the United States, China , Japan and the United Kingdom were affected. India escaped the economic recession with a few bruises. Mr. Shivshankar Menon, the National Security Adviser to Prime Minister Manmohan Singh, was full of praise of how India and the subcontinent handled the recession. He said,” the subcontinent has not only survived but has shown remarkable economic vitality. While the world has undergone the worst recession since the great depression in the 1930’s, South Asia’s economic growth has steadily out shown all but China. To some extent the continuing growth of the Indian economy has helped smaller South Asian economies to grow during the recession”.

He highlighted the fact that South Asian countries have a lot in common in terms of language, culture, religion  and popular affinity. But these affinities and economic dependency fail to translate into easy political relations. The subcontinent as a whole including India lacks ‘good governance’.”I am convinced that we also underestimate what we do with each of our other neighbouring countries. The reality of the economic interdependence is much more than what is admitted by official figures “,  added Menon. In this environment, we must diligently pursue policy coordination at the global level in order to achieve orderly realignment of consumption and investments world-wide and to reduce, and possibly eliminate economic instability .

“The India economy is facing a major crisis today because of the global slowdown. Most countries are getting into debt issues which is effecting everyone due to globalization”, say Dr. Deepa Gupta, Deputy Director of Symbiosis School of Banking Management (SSBM).” India has fallen out of love with reforms. Second generation reforms are not being implemented at the pace it should happen .Our country is ridden with corruption and scams. Investors are losing faith in the Indian economy as it can’t free itself from scams,” added Dr. Gupta.

A bird’s eye view of the government finances suggest that little can be done in a short time frame. About 56 per cent of the government’s total expenditure of 14 trillion goes towards interest payments pensions subsides grants to state and defense. “Revenue deficit is the key to fixing the fiscal mess ,”say Dr. Gupta. “Revenue deficits over the last four years have been among the highest in four decades and have pulled down national savings, investments and growth”, she added.

India is need of more focused reforms in order to transform economic priorities into a reality.”Every time the government has to present the budget , they give us  the same old wine in a new bottle”, say Dr. Gupta. The budget 2013 neither helps the poor nor the nation as a whole. While the world looks at India for steering its economic growth, the  political system of India is systematically killing the hen that lays the golden egg.

But in hope,we live for change !

**(Figures and Stats taken from Business and Economics Magazine and Mint)

Budget 2013: SUVs, smartphones, cigatettes to cost more

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The 2013-2014 budget announced, by Finance Minister P Chidambaram, raised quite a few eye-brows in the Indian consensus today. Termed a ‘bail-out budget’, the announcement by  makes sports utility vehicles, imported cars and motorcycles, high-end mobile phones, eating out at air-conditioned restaurants and cigarettes costlier with Chidambaram deciding to impose higher taxes on these items.

On the other hand, there is good news for ladies as far as jewellery is concerned as they will be allowed to bring more duty free gold items provided they have stayed out of India for more than year.

“What does a Finance Minister turn to when he requires resources? The answer is cigarettes. I propose to increase the specific excise duty on cigarettes by about 18 per cent. Similar increases are proposed on cigars, cheroots and cigarillos,” he said while delivering the Budget speech.

Homes and flats with a carpet area of 2,000 sq ft or more or of a value of Rs 1 crore will also become more expensive as the rate of abatement for this class of buildings has been reduced from 75 per cent to 70 per cent.

Silk clothes made using imported raw materials will become expensive as customs duty on raw silk of all grades has been increased to 15 per cent from 5 per cent.

Set top boxes will also become costlier with basic customs duty on the item has been increased 10 per cent from from 5 per cent.

Follow the budget here.

Rail Budget: Base Fares same, other charges increase.

While no hike in base passenger fares has been proposed, Superfast and Tatkal fares are set to increase. Along with that, reservation fees, supplementary charges and cancellation charges have been hiked. These increase in fares in addition to the hike in freight rates are expected to raise around Rs 4700 crores.

New changes in the railways proposed in the budget also include an upgraded IRCTC website that can handle around 120,000 users at a time. Earlier, the website could not handle excessive traffic, causing inconvenience to passengers who wished to book their tickets online. The new website would reduce the illegal activities by touts like booking all the tatkal tickets while actual passengers would not be able to purchase any. In keeping with the technical upgrades, free wi-fi was announced in select trains. An anti-collision system would also be introduced.

The railway minister Pawan Kumar Bansal announced the luxury coach ‘Anubhuti’. “With the popularity of Shatabdi and Rajdhani trains, high-travel comfort has been high on passenger agenda. For this, one such coach, that will provide excellent ambience and services, will run on select trains”, he said. The fare on Anubhuti may be 20-30% higher than that of the existing luxury classes. These coaches would have designer toilets, coffee machines and personal LCD screens. This coach would have 40 seats, a mini-pantry and diffused lighting.

Even as Mr Bansal talks of new services, railways face a loss of Rs 24,600 crores in the current financial year. Though the proposed changes are supposed to enable the Railways to have a surplus of Rs 13,147 crores in 2013-14.

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On the Right Track?