Corporate defaults at 10 year highs

As many as 188 entities rated by CRISIL defaulted on interest payments during financial year 2011-12 (April-March). According to CRISIL, this is the highest in a single year in absolute terms, and on a relative basis, translates into a 10-year high annual default rate of 3.4%.

“These pressures are also reflected in the increase in banks’ gross non-performing assets (NPAs; to 2.9 per cent of advances from 2.3 per cent), and in the quantum of debt restructured (to 3.3 per cent of advances from 2.5 per cent) between March 31 and December 31 of 2011,” the CRISIL release said.

An important point to note – Crisil expects this trend to continue.

Economist: India losing its vast potential

This isnt new, media is full of such stories. Now the Economist joins the tirade againts UPA. Excerpts from a Mar’12 article

It is not too much of a stretch to say that since independence in 1947 there have only been two kinds of Indian economy.

The first produced slothful growth, mind-bending red tape and suffocating bureaucracy. The second revved up gradually after liberalisation in the 1990s, so that by the mid-2000s India was a land of surging optimism—open and full of entrepreneurs who overcame a retreating but still cranky public sector. The country seemed destined to enjoy a long spurt of turbocharged growth, thanks to its favourable demography, fired-up firms, gradual reforms and willingness to save and invest.

But lately, like a Bollywood villain who just refuses to die, the old India has made a terrifying reappearance.

The full article: Losing its magic

25 retrospective amendments in this years union budget

Dr Haseeb Drabu has a good article in the Mint where he points out –

‘the 2012-13 budget has sought a record number of 25 retrospective amendments—more than any other Finance Bill ever. And, very significantly, the maximum number of amendments relate to the increasing the discretionary control of the Union government.’

The full article here..’The Rise of Regulatory Raj‘

 

Private Equity investments in India aggregates over $11bn in 2011, Four-S reports

2011 PE activty data from Four-S

Mumbai, January 3, 2012: The year 2011 saw 427 PE/VC deals worth $11.19bn compared to investments worth $7.96bn across 328 deals in 2010, shows data with research and financial consulting firm, Four-S Services. With drying-up of the public market as well as debt becoming costlier, India Inc. turned to PE investors for fresh funding.

The year also saw a surge in number of high value deals – there were 30 deals above $100mn in value (worth $5.91bn; 53% of total investments) compared 19 deals (worth $3.46bn) in 2010. Correspondingly, the average deal size for the year went up by 16% to $32.9mn.

The largest PE investment during the year was the $851mn commitment by Bain Capital and Singapore’s GIC to Hero Investments, the Hero group holding firm which is to buy out Honda Motors’ 26% stake in listed two-wheeler maker Hero Honda. This was followed by Apax Partner’s $480mn investment in NASDAQ-listed iGate Corp to buy Patni Computers. In another mega deal, Apollo Global Management invested $290mn in Welspun Corp as a part of its $500mn commitment to the Welspun Group. Blackstone Group’s owned Sithe Global Power invested around $261mn investment in SKS Chhattisgarh Power Generation. TPG committed $259.9mn to Shriram Capital, rounding up the top 5 investments of the year.

Infrastructure (including power) continues to remain one of the key investment themes for PE players. The sector topped the investment chart accounting for 27.8% of investments with a deal value of $3.11bn. The scale of deficit and government commitment to fund infrastructure projects, makes private participation in the sector one of the most compelling investment themes leading to growing PE’s interest.

The manufacturing sector occupied the second slot in terms of PE investments and totalled $2.02bn across 66 deals; this translates into 18.1% share. The sector was marked by some high value deals, including the largest transaction during the year – Bain Capital, GIC’s $851mn investment in Hero Investments.

The BFSI sector came next with $1.36bn investments across 40 deals. Fund managers believe that there are enough opportunities for private equity in virtually every facet of the financial services industry considering the rising income levels, focus on infrastructure spending, emphasis on financial inclusion, emergence of wealth managers and expected growth of the insurance industry.

However, the year was not so good for private equity exits. Against the backdrop of a difficult public market, PE exit volume fell 35% to 80 deals while value fell 49% to $2.69bn. This is in sharp contrast to 2010 when exits hit a record and there were 124 exit transactions worth $5.30bn on the back of robust capital markets. Fund managers were unable to match their exit timing with desired returns, and held back their portfolios.

Table: PE/ VC investments in India

	2007	2009	2009	2010	2011
Investment ($bn) y/y growth (%)	19.20 157%	11.16 -42%	4.25 -62%	7.96 87%	11.19 41%
No. of deals	382	344	250	328	427
Average deal size* ($mn)	57.2	38.8	20.9	28.4	32.9

* calculated over disclosed transactions

Source: Four-S Services

Table: Top 5 PE deals in 2011

Investors		Target	Stake (%)	Amount ($Mn)	Sector – Industry
Bain Capital, GIC	Hero Investments		29	851	Manufacturing – Auto
Apax partners	iGate Corp (Patni acquisition)		NA	480	Services – IT/ITeS
Apollo Global Management LLC	Welspun Corp		NA	290	Manufacturing – Metals
Blackstone	SKS Chhattisgarh Power Generation		NA	261	Infrastructure – Power
TPG	Shriram Capital		15.0	260	Services – BFSI

Source: Four-S Services

Azim Premji – One bizman who doesn’t mince words

There are too many of our leading business men who will always be politically correct, almost fawning, when it comes to dealing with the government. But not Azim Premji. He is one person who has often said some very critical things in public.

Even at Davos, he has not been diplomatic when talking about UPA govt.  Here is a reported statement –

Premji says, he is “extremely disappointed” over the failure of the UPA government to tackle key issue such as breakdown in governance. “We will send concrete recommendations to plug gaps in governance.” He says India Inc’s open letter to government was the first step in that direction.  “We have pointed out long-term national issues in open letter.”

“It will be difficult to bring down inflation to 7%,” he says.

The RBI governer claimed on Tuesday that inflation will come down to 7% by March. Clearly, Premji is not buying that.

2010 was a good year for Indian equities

Year of the Monkey

2010 ended up a very good year for Indian equities. Not only did the headline indices record decent gains, what is more important is the advance – decline ratio for the year. Check some data:

Index Gains (%)

Sensex	17.6
Nifty	18.0
BSE Midcap	16.5
BSE500	19.3

Advances

Gains>0	62.0
Gains>15%	50.0

So 50% of traded stocks (we took companies with mcap > Rs 100 crore) gained more than 15%. It is hard to lose money in markets like that.  You could call 2010 the year of the monkey – You could throw a dart and make money.

2011 – Year of the Owl?

I doubt market may have this kind of breadth in 2011. This kind of breadth happens only in strong bull markets. For 2011, expect the number of companies gaining >15% to fall to 35% or less. So 2011 may well be the year of the wise owl – one will need to stock picking skills to make money in 2011.

Tata Trivia

Came across this on one of the Tata group sites..

As Hewitt Robins joins the Tata group in the UK, it increases the number of Tata companies to 20, and includes well-known names such as Corus, Jaguar, Land Rover, Tata Consultancy Services, Tata Motors, Tata Communications and Brunner Mond.

Tat group has 20 operating cos in UK. India group’s surely must take the cake in diversification.

One more morning fire..

Industrial accidents in India tend to happen mostly in early mornings, when there is no one in the factory. Such accidents typically involve no injury or loss of life. The loss is typically of inventory, tho this one seems to say some buidings and machines may also be damaged, or so it says.

One more of this type (note – no injuries, only loss of company material)..

Abhishek Industries Ltd has informed BSE that there had been an explosion of the Chemical Storage tank which was stationed outside the Terry Towel Unit of the Company (Unit No – 3) situated in the Lotus Integrated Texpark Ltd (Textile Park) at Mansa Road, Dhula (Punjab).

The explosion took place in early morning of July 1, 2010 and has caused loss to the building, plant a machineries, and stock stored in the various units situated under the Textile Park which among others include Unit No – 3 of Terry Towel division of the Company. The Unit No – 3 of Terry Towel division of the Company houses 42 looms. Since the Textile Park is situated adjacent to the other manufacturing facilities of the Company; the explosion has also caused losses to the nearby buildings. plants of machineries and stocks of other units of the Terry towel, Paper and Energy division of the Company.

WPI March – Govt massages data again

On WPI, we have been saying for a few months now that the government is massaging data. So March data isn’t such a surprise. Government has managed to keep reported WPI under 10% for 2 months in a row on. In Feb, it was 9.89%, and now, it is 9.90%.

Check what we had written in a post in Feb (http://fairval.wordpress.com/2010/02/15/wpi-8-56-for-jan-shud-peak-in-feb/) –

WPI has room to grow till 10 percent. Our data suggests on ground inflation was around 10-12 percent in January, higher than the government figure.

Politically, it may not be acceptable to let inflation rise beyond 10percent, so the government may be tempted to control reported WPI to a shade below 10 percent. We would expect the rise to peter out at about 9.5 percent or so, which may well happen in Feb. WPI could then start coming down from March/April onwards.

This is almost what the government has done. WPI has greater than 10% for a few months, around Nov-Jan period, but the government has kept the data under 10%.

WPI should have peaked now, and should ideally begin to fall.

Moore’s law in financial inclusion?

Fino's growth rate

The chart shows the time FINO has taken to expand its customer base. Quite a remarkable rate.  The rate may have settled down at about 35-40 days per million customers, since FINO now claims 13mn customers. This data is around Aug09.