Indiainfoline Weekly Newsletter

Inflation hits 13-month low

India's inflation, based on the Wholesale Price Index (WPI), declined to 4.28% in the week ended June 9, the Government said on Friday. This was lower than the previous week's level of 4.80%. The annual point-to-point inflation rate is now at its lowest since the week ending April 29 last year, when the rate was at 3.9%. It was lower than average forecast of 4.43% and was also down from 5.29% during the corresponding week of the previous year. The decline was attributed to lower prices of fruits, lentils and cereals.

The steep fall in inflation since mid-April has taken the pressure off the Reserve Bank of India (RBI) and the Government to announce more measures to curb spiraling prices. This also augers well as Finance Minister P. Chidambaram and the central bank do not want to disturb the momentum in economic growth. India's economy has averaged 8.6% growth since 2003 and grew by 9.4% in FY07. Meanwhile, the Government revised the inflation rate for the week ended April 14 to 6.34% from a preliminary projection of 6.09%.

FPO...ICICI Bk may price it close to upper end

Institutional investors lapped up the ICICI Bank's mega follow-on public issue. The biggest interest came from overseas investors, led by Temasek and Warburg Pincus. The issue, which opened on June 19, was fully subscribed soon after the bidding started. As of 19:00 hrs (IST) on Friday, the issue was subscribed 11.46 times. The private sector bank received bids for 1.13bn shares as against the issue size of 98.87mn shares.

Citi, Merrill Lynch, Temasek and LIC put in bids worth US$2bn while SBI invested US$1.35bn. Warburg Pincus, the US-based private equity giant, put in bids worth US$1bn. ICICI Bank plans to raise a total of Rs100.62bn, including a greenshoe option of Rs13.13bn. Given the response, the bank could price the issue close to the upper end of the Rs885-950 indicative range.

The follow-on issue is part of ICICI Bank's plan to raise as much as US$5bn from the combination of domestic and ADR offerings. ICICI Bank, which is listed in Mumbai and New York, is offering up to US $2.1bn worth of shares to US investors. A 15% over-allotment option is expected to be exercised, which could push the final size of the fundraising to US $4.9bn. Pricing was expected after the US sale concludes later on Friday.

Bulls bounce back; Banks shine

The bulls managed to stage a swift recovery yet again after a weak start this week. Earlier, fears of the impact of large public issues of DLF and ICICI Bank proved to be short-lived. Concerns over the CBDT circular, provided some hiccups as well. However, all's well that's end well. The bulls came roaring back with Banking and Capital Goods stocks leading from the front.

Banking stocks were in limelight after ICICI Bank's follow on issue was fully subscribed within minutes of the opening. Apart from ICICI Bank, other index heavyweights like REL, L&T, Gujarat Ambuja Cement and SBI contributed significantly towards the gains over the week. Capital Goods, PSU Cement, Pharma, Real Estate and Auto were among the other major gainers over the week. While IT stocks remained weak due to the rising rupee.

Finally, the benchmark BSE Sensex added 352 points or 2.49% during the week to close at 14,467 and the NSE Nifty advanced by 91 points or 2.20% to close at 4252.

Capital Goods stocks were in momentum, led by Power Generation and Heavy Engineering companies. The strong outlook for the infrastructure projects and healthy book order positions for most companies lifted the Capital Goods stocks. The BSE Capital Goods index was the second biggest gainer of the week, and rose 4.9%. L&T led from the front. The scrip surged by over 8% to Rs2107, BHEL rose 3.6% to Rs1440 and Alstom Projects surged by 21% to Rs723.

Auto stocks recovered some of the lost ground due to value buying. They had plunged over last few weeks on concerns that rising interest rates would impact sales and high commodity prices would crimp margins. However, with fears over interest rates receding, auto stocks picked up some momentum. Tata Motors was the top gainer. The scrip was up by 5.2% to Rs684, M&M paced ahead by 4.4% to Rs731, Maruti was up by 2.8% to Rs761 and Ashok Leyland added 5% to Rs38.35.

Expectations that the RBI will not tinker with the interest rates and the CRR in the near term boosted the banking stocks. The BSE Banking index was the biggest winner of the week, rising by 5%. SBI was the top gainer. The scrip rallied nearly 10% to close at Rs1324. ICICI Bank surged by over 5% to Rs954. The bank is likely to price its hugely successful follow-on public offer towards the upper end of the Rs885-950 price band. PNB, UTI Bank, Kotak Bank and Bank of India were among the other major gainers. However, HDFC Bank was down by 0.6% to Rs1103.

IT stocks bucked the positive trend and closed lower for yet another week. The rupee gained 0.3% this week and ended at Rs40.75 against the US Dollar. The BSE IT index was the sole loser of the week, slipping by 2.8%. Satyam was among the top five losers in the Sensex. The scrip fell 4.3% to Rs461, TCS dropped 3.7% to Rs1140, Infosys declined 3% to Rs1950 and Wipro dipped 2.5% to Rs514.

Educomp Solutions soared by 22% to Rs2312. The scrip touched the week's high of Rs2370 and a low of Rs1861. Educomp has raised US $80mn via a FCCB issue at a conversion price of Rs2949.83 per share. Also, the company received the RBI's nod for allowing 100% FII investment in the scrip.

Reliance Energy was another strong performer. The scrip rose over 11% to Rs590, touching the week's high of Rs597 and a low of Rs522. The Bombay High Court has restricted RIL from selling the gas from its KG basin field to a third party other than RNRL and NTPC.

Real estate stocks were also in the limelight during the week. Parsvnath surged by over 3% to Rs340 and Sobha Developers gained 3% to Rs871.

Can the bulls make it now?

No Matter How Far We've Come
I Can't Wait To See Tomorrow

The bulls will once again hope they scale past the previous Sensex peak in the coming week. The Sensex is now 256 points away from its all time high. Given the fall in inflation, healthy advance tax numbers and impressive rollover figures so far, bulls may hope to achieve the psychological milestone next week itself.

However, volatility will once again rule the bourses on account of the F&O expiry next week. In the recent past, any fall has been met with an immediate bounce back. The bulls will hope any fall will be met with lower level buying.

As always, keep an eye on the overseas markets. If global cues continue to remain strong, we may see another run for the bulls. The key event to watch out for would be the outcome of FED meet on Thursday. A volatile week lies in store as the bulls and bears struggle for a clear direction.

Govt okays Mittal investment in HPCL refinery
The Union Cabinet approved the proposed investment by steel tycoon Lakshmi Niwas Mittal in the Bhatinda refinery project of Hindustan Petroleum Corporation Ltd. (HPCL). Mittal Investments plans to acquire a 49% stake in the 180,000 barrels per day ( 9 million tonnes per year) refinery for Rs33.65bn through its 100% arm, Mittal Energy Investments Pte Ltd, Singapore. Mittal Energy Investments will also have to obtain the approval from the Foreign Investment Promotion Board (FIPB) before the deal is finalised. The Cabinet approval for the deal was required since current government policy restricts Foreign Direct Investment (FDI) in public-sector petroleum refineries at 26%. HPCL will hold 49% stake in the Rs179.73bn project, while the balance 2% would be allocated to financial institutions.

Govt hikes sugar buffer stock to 5mn tons

In yet another attempt at boosting the fortunes of the politically sensitive sugar industry, the Government decided to increase the buffer stock of sugar to 5mn tons from 2mn tons to help beleaguered mills hit by a huge glut and low exports. The buffer stock would be held by sugar mills. But, the Government would meet maintenance and storage costs. The money would be used by sugar producers to pay cane farmers. Stocks will be valid for one year. Sugar output in India, the world's second-largest producer and biggest consumer, is expected to touch 28mn tons this season ending September while domestic consumption is likely to be 19mn tons. After including last year's carryover stock of 4mn tons, the country would have a total stock of 13mn tons this year.

RIL can't sell KG gas to 3rd party: Bombay HC
The Bombay High Court ruled that Reliance Industries Ltd. (RIL) cannot sell natural gas sourced from its huge Krishna Godavari basin field to a third party other than RNRL and NTPC. However, RIL can use the gas from KG basin for its own captive use in the first eight years. RIL plans to begin production from the KG basin block from July 2008. Initial production will be about 40 million standard cubic meters of gas per day (mmscmd). Peak output would touch 80 mmscmd. Meanwhile, the Government is considering challenging the Bombay High Court decision. According to reports, it could move the Supreme Court against the Bombay High Court order as it would like the gas to be made available to power and fertiliser companies. The Bombay High Court order could also impact the Government’s revenues as it earns profit petroleum from the sale of gas.

Sterlite raises US$1.75bn from US market

Sterlite Industries India Ltd. announced that it has raised US$1.75bn from the US market in what is the biggest overseas equity offering by an Indian company. The Anil Agarwal-promoted copper and zinc producer has priced its IPO of 130,440,000 equity shares in the form of ADS, at US$13.44. These equity shares in the form of ADS represented about 18.9% post-issue capital of the company. Sterlite's ADS started trading on the New York Stock Exchange (NYSE) under the symbol "SLT". The Sterlite ADR closed at US$14.86 on Thursday. After this offering, Sterlite will have about 689mn equity shares outstanding. All the equity shares in the form of ADS were sold by Sterlite.

Tata Group forms new financial services unit

Tata Sons Ltd., the holding company of the Tata Group, announced the formation of a wholly-owned subsidiary company called Tata Capital Ltd., which will undertake new activities in the financial services arena. Tata Capital proposes to enter the area of Capital Market Services, Merchant Banking, Housing Finance, Private Equity Investments, Assets and Vehicle Financing, Retail Finance and other related areas. These activities would be undertaken either in subsidiary companies or divisions of Tata Capital depending on regulatory requirements, Tata Sons said in a statement. The existing Tata companies in the Financial Services space such as Tata AIG Insurance companies, Tata Asset Management Company and Tata Investment Corporation, will continue to remain separate entities and function as at present, Tata Sons said.

Kingfisher Airlines to buy 50 Airbus planes

Kingfisher Airlines Ltd. said it had signed a preliminary US$7.2bn deal to buy 50 Airbus aircraft. This will include 15 A350-800 XWB jets worth US$3bn. The order also includes five four-engine A340-500 planes, 10 A330-200 wide-body models and 20 single-aisle A320-family jets. Kingfisher had already ordered 5 of the original version of the A350 and has upgraded these orders to the redesigned A350 XWB model. The new order for 15 A350 XWBs brings the total commitment for the aircraft to 20. Kingfisher will use the planes to fly to the US and Europe and meet India's growing demand for air travel, said UB Group Chairman Vijay Mallya, at a press conference in Le Bourget. The single-aisle planes will be used to expand routes in the domestic market, where passenger traffic is set to grow 25% annually for the next decade.

Britannia shares up on Danone settlement news
Shares of Britannia Industries Ltd. jumped after a business daily reported that French food major Groupe Danone would exit the joint venture with the Wadia group in return for a free play in pursuing its solo foray in India. The newspaper said Danone was getting "impatient" for launching its independent operations in India and was willing to pay a compensation to the Wadias for terminating the joint venture. "We are willing to take radical steps to pursue our own plans," the daily quoted a Danone official as saying, provided the French firm was given a free hand to pursue its dairy and beverage plans, sans biscuits. The value of Danone's holding in Britannia is more than Rs10bn (US$245mn), but the company has not discussed the pricing so far, the newspaper said, quoting unnamed Danone sources.

Probe ordered into Naresh Goyal-underworld link

The Bombay High Court ordered the Mumbai police to probe Jet Airways chairman Naresh Goyal's alleged links with the underworld. The court has given the Mumbai Police Commissioner two months to submit a report, besides asking if the department wanted the help of Central Bureau of Investigation (CBI). The direction came while hearing a petition filed by a Delhi based journalist that alleges that the Intelligence Bureau (IB) had found links between Goyal and mafia don Dawood Ibrahim. It also alleges that Goyal's airline has got funds from the underworld. Jet Airways said in a statement that it had so far not received any intimation from any quarter of any proceeding or order that may have been passed. Similar allegations were also made in the past but government inquiries found no evidence against Goyal. Jet has always denied any links with the underworld.

HDIL, Spice Tele launch IPOs

Housing Development and Infrastructure Ltd. (HDIL) announced that it had fixed a price band of Rs430 to Rs500 per share for its Initial Public Offering (IPO) of equity shares. The public issue of HDIL will open on June 28 and will close on July 3. HDIL is part of the Wadhawan Group (formerly known as the Dheeraj Group), which has been involved in real estate development in Mumbai for nearly three decades. According to reports, HDIL has around 45.5 million sq. ft under construction and an additional 66.6 million sq. ft in various stages of planning. HDIL's land bank of 2,500 acres spread across Mumbai, Kochi and Hyderabad has been valued at Rs215bn by real estate consulting firms Knight Frank India and Cushman Wakefield India.

Spice Communications Ltd., the BK Modi Group wireless telecom service provider with operations in Punjab and Karnataka, launched its IPO of 113,111,111 equity shares. The issue will open on June 25 and will close on June 27. The issue will be 16.4% of the fully-diluted post-issue equity share capital of the company. Spice Communications fixed a price band of Rs41 to Rs46 per share for its maiden public issue. The promoters own 51% in Spice Communications while Telecom Malaysia holds the balance 49%. Post IPO, their shareholding will be 41% and 39%, respectively.

UTV arm raises US$77.33mn from AIM

UTV Software Communications Ltd. said its subsidiary UTV Motion Pictures Plc has raised US$77.33mn through an IPO on the Alternative Investment Market (AIM) of London Stock Exchange (LSE). UTV Software has closed the book for allotment of 24,137,931 equity shares of US$0.05 each (comprising 23.17% of the post allotment equity) at US$2.90 per share aggregating to US$70mn. UTV Motion Pictures has also retained a greenshoe option to further allot 2,528,735 shares at US$2.90 per share. Post the greenshoe option, UTV Motion Pictures would in aggregate raise US$77.33mn with 25% dilution, with UTV Software holding the balance 75%. Meanwhile, the Indian Film Company, promoted by the TV 18 Group and Viacom, made its debut on the AIM. Shares of The Indian Film Company were placed at 100 pence (£1) per share raising £55mn from the listing. Shares rose as much to 120 pence (up 20%) on their debut.

Barclays sets tone on deal street
HDFC and Barclays Bank Plc decided to sell their entire shareholding in Intelenet Global Services, an India-based third-party BPO service provider, to SKR BPO Services Ltd. (SKR) for an undisclosed sum. According to reports, the deal value was around US$200mn. SKR is jointly owned by the management of Intelenet and Blackstone GVP Capital Partners Mauritius V-B Ltd., a member of the Blackstone Capital Partners group, a leading global private equity investor. Intelenet provides BPO services to a variety of local and international customers. It is a 50:50 joint venture between HDFC and Barclays and was established in 2004.

Bank of India (BOI) said that it had signed an agreement to acquire a 76% stake in PT Bank Swadesi Tbk, Indonesia. Bank Swadesi is a well run mid sized bank operating in Indonesia for the last 38 years and has 16 outlets. It has a licence to Forex Business and is listed on the Jakarta Stock Exchange. The deal was first announced by BOI in December 2006. This is the first overseas acquisition for BOI, which has a representative office in Indonesia for the last 33 years.

KazStroyServices Plc acquired Petron Engineering Construction Ltd. for an undisclosed amount. KazStroyServices bought 21,095 shares from Amritha Sharanya Leasing & Investments (ASLI) and 721,530 shares from SRA Finance & Investments (SRA). ASLI and SRA held 80% shares in Petron Investments, which held 52.22% in Petron Engineering. In addition, KazStroyServices acquired Petron Investments shares from four individual shareholders. KazStroyServices also made an open offer for buying an additional 20% stake in Petron Engineering at Rs180 per share.

Batliboi Ltd. announced the acquisition of a 70% controlling stake in AESA Air Engineering SA, Europe’s premier Air Technology company for Euro 1.6mn (about Rs90mn) in an all cash deal. The acquisition of AESA marks Batliboi's second foray into the M&A space after the successful takeover of QuickMill, a Canadian Machine Tool company in March.

Cranes Software International Ltd. said its Board had approved the acquisition of Dunn Solutions Group, a US technology based consultancy company. The company's wholly owned subsidiary in USA, Cranes Software Inc. will invest Rs600mn in acquisition and immediate investments. Cranes Board also approved the acquisition of Tilak Autotech, thereby making it a wholly owned subsidiary of the company. The investment would entail about Rs100mn in acquisition cost and immediate investments.

Blackstone mops up US$4.1bn in IPO

Notwithstanding the proposed hike in taxes on private equity firms by the US Congress, Blackstone Group LP managed to raise US$4.13bn in the largest IPO in five years. Blackstone sold 133.3mn shares for US$31 each, the top of its US$29 to US$31 target range. Sale of the 12.3% stake values the New York-based firm at US$33.5bn. Blackstone will let underwriters, led by Morgan Stanley and Citigroup, sell an additional 20mn shares in case there is excess demand. That would boost the total offering to US$4.75bn. The IPO valued Chief Executive Stephen Schwarzman's stake at US$7.74bn. Schwarzman, who co-founded the firm 22 years ago, will also get a one-time payout of up to US$677.2mn. Senior Chairman and co-founder Peter Peterson's stake was valued at US$1.35bn. Blackstone, one of the largest private equity investment firms in the world, is set to begin trading on Friday on the New York Stock Exchange under the symbol "BX." Reports also said that Kohlberg Kravis Roberts (KKR) was also planning its own IPO. The private equity firm, known for its takeover of RJR Nabisco in 1988, has hired Morgan Stanley and Citigroup. But, KKR may still decide against the IPO, which values the firm at about US$34bn, The Wall Street Journal reported on its Web site.

WTO talks fail on farm issues
The ill-fated Doha round of global multilateral trade talks remains in doldrums after crucial talks among four leading WTO members - the US, the EU, Brazil and India - collapsed on the contentious issue of farm subsidies and tariffs. The US and the EU said that India and Brazil offered nothing new to break the impasse while the latter two blamed the developed nations for their reluctance to cut farm aid and import duties on agriculture commodities. "Since discussions began on June 19, Brazilian Foreign Minister Celso Amorim and Indian Commerce Minister Kamal Nath didn't move an iota from the point we started at two years ago," US Agriculture Secretary Mike Johanns told journalists in Potsdam, Germany. "I could have done cartwheels off the roof of this building and I'm still not sure I would have got a response," he added. Though WTO director general, Pascal Lamy said that an agreement in Potsdam would have been helpful, he held out hope that other members could resurrect the negotiation. "Helpful does not mean indispensable," Lamy said.

BHP may revive Alcoa bid: report

Anglo-Australian mining giant BHP Billiton was reportedly considering making a US$40bn bid for the US-based aluminium major Alcoa. "BHP Billiton is believed to be in the early stages of evaluating the merits of a takeover and is not thought to have formally approached Alcoa," London-based Times reported. Separately, Sydney Morning Herald reported that BHP and rival Rio Tinto were among those being considered by Alcan for the role of the white knight, but the process was still in early stages. Both the mining majors were considered potential counter bidders to Alcoa, the world's second-biggest aluminum maker which has already made a US$27.7-bn hostile takeover bid for Alcan, the newspaper said. While Alcan refused to confirm or deny the media report, BHP and Rio too declined to comment. Alcan rejected Alcoa's offer in May and the company has said it is considering other options that could include working with BHP and Rio to fight off the bid from the US rival.

ICI rejects bid from Akzo Nobel

Shares of Imperial Chemical Industries Plc (ICI) surged after the British firm spurned a £7.2bn (US$14.2bn) takeover offer from Dutch rival Akzo Nobel NV, saying that it undervalued the company. Akzo, the world's largest maker of paints and coatings, offered 600 pence a share, a price that significantly undervalues the business, London-based ICI said in a statement. That's 9.3% more than Friday's closing price. ICI said its directors had unanimously rejected the Akzo proposal. "The Board is very confident in the group's strategy and strong growth prospects," it said. "The company will continue to evaluate all strategic opportunities, including ICI, based on a disciplined and value-driven approach to earnings and returns over cost of capital," Akzo said. Apart from ICI, Valspar and Sherwin-Williams are among Akzo's likely takeover targets, analysts have said. ICI could also attract other suitors, according to them.

Luxottica to buy Oakley for US$2bn

Luxottica Group SpA, the maker of Ray-Ban and Ralph Lauren brand of eyewear, announced it would acquire Oakley Inc. for US$2.03bn. California-based Oakley's investors would receive US$29.30 per share, a 16% premium to yesterday's closing price. The deal has been approved by both company boards and is expected to be finalised in the second half of 2007. The Milan-based Luxottica said that Oakley would boost service and innovation for its wholesale customers. Oakley's namesake chain, Bright Eyes outlets and Sunglass Icon stores would complement Luxottica's LensCrafters and Pearle Vision retail business in North America, the companies said. Luxottica said the tie-up should produce € 100mn (US$134mn) in savings during the next three years. The deal would increase fiscal 2008 sales by around 12% and would be roughly neutral for earnings excluding any tax benefit, said Leonardo. It plans to fund the acquisition from operating cash flow, available lines of credit and new debt.