Fairval

Notes on Indian equities, sectors and economy

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Indian handicraft exports are booming

Posted by fairval on May 17, 2017

Our research arm India Business Reports (IBR for short) recently did a note on handicrafts and handloom exports out of India. Good to see that this segment is booming.

Handicrafts exports touched USD 3.66B in 2016-17, a growth of 11% over FY16 in USD terms. In Re terms exports grew 13.8% to Rs245B in FY17, as compared to Rs216B in FY16. These figures does not include export of carpets, which is another sizeable market by itself.

Handicrafts2

(Source: EPCH)

Over and above the handicraft exports, India exported around USD1.8B of carpets an floor coverings. A major portion of this is handmade.

Growth rates for both – handicrafts and carpets – are healthy. Over FY10-17, handicraft exports have grown at ~15% in USD terms. Over FY97-17, a 20 year period, handicraft exports have grown at 10.2% CAGR in Re terms. Growth rate of carpets is slower, but impressive nonetheless. Exports of carpets have grown at 5% in USD terms over the last 5 years, and 13% in INR terms.

In the last 1-2 years, growth rates have slowed down for all sectors, in both domestic markets and exports. In light of that, this growth in exports in handicrafts is commendable, and makes it a ‘growth sector’.

For the full report, you can write to reports@indiabusinessreports.com; also available on Slideshare at  https://www.slideshare.net/IndiaBusinessReports/handicrafts-market?qid=c91002da-202a-47a6-bce5-9592f319fa73&v=&b=&from_search=1

 

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Posted in Indian Economy, Trends | Tagged: , , , | Leave a Comment »

UP’s buffalo beef production surged under SP/UPA

Posted by fairval on March 27, 2017

The new UP chief minister Yogi Adityanath is cracking down on illegally run buffalo slaughterhouses, and this has understandably created a lot of media noise. But that is what it has been, a lot of noise, very little analysis.

Data shows that buffalo beef production has surged sharply in India over last 7-8 years, and UP has been the main growth driver.

Buffalo2

In states other than UP, buffalo beef production grew at 9% CAGR over FY09-16. In UP it grew 22%, lifting all India average as well. UP now produces more than all the other states put together.

It would be good to know why exactly UP is such a stand out performer.Was this due to some good policies of SP/UPA?

Also, this must be data from just legal slaughterhouses, since this is government data. UP has 38 government-approved abattoirs according to media data, out of a national total of 72. In addition to the legal 38, it appears there are an illegal 140 in UP alone. They must be smaller than the legal ones, however, no one seems to have any clue of how much they produce.

Interestingly, it is buffalo beef which has surged in UP the most, not all meat classes. UPMeat

In UP, Poultry (the second largest meat category after buffalo beef) has grown at 7% CAGR in FY09-16. Goat and pig have interestingly shrunk, pig by as much as -8% CAGR.

Buffalo beef is mostly exported it seems. It would be good if the media went into the economics of the business is more detail; there are some interesting trends there which need analysis

 

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India tops JBIC FDI survey for 2016

Posted by fairval on January 14, 2017

For the third year in a row, India has emerged as the most promising country for overseas business, in the annual survey ‘Outlook for Japanese Foreign Direct Investment’ by Japan Bank for International Cooperation (JBIC). 

India replaced Indonesia as the top investment destination in 2014; and has held the position ever since. The table belows shows the result of of the 2016 survey. The survey is published in December. The 2016 survey was the 28th survey.

This is very significant. China held the no 1 position for more than a decades before Indonesia emerged on top for 2 years, and was then displaced by India.

This should result in increased activity by Japanese companies in India. Out of the 230 companies citing India as a promising, 60% (142 companies) do not have a local production base. They survey asks another key question – do you have a real business plan to go to India? In 2016, 40% of the 230 companies which named India also said they are actively working on India entry. In 2015, this figure was 36% (of 168). So there is a clear increase in in active interest in entering India.

jbic-survey

More on India Business Reports (www.indiabusinessreports.com)

Posted in Indian Economy, Trends | Tagged: , , , , , , | Leave a Comment »

VC/PE deal space continues to see slowdown

Posted by fairval on December 14, 2016

Amount of investment in Indian VC/PE (and angel) space continues to see slowdown. This is from data for Jan-Nov’16 (Source: http://www.indiabusinessreports.com)

vcdealsnov16

YTD amount is just over USD8B, down 38% over last year, while deal count is down as well.

The decline is sharpest in internet based businesses, where investment is this year is just about a third of last year.

Posted in Data, PE/VC, Uncategorized | Tagged: , , , , | Leave a Comment »

Are Ruias India’s most selfless & misunderstood entrepreneurs?

Posted by fairval on October 22, 2016

A seminal deal happened this week: one of the largest ever acquisitions of an Indian company, and as the full page ads mentioned – India’s largest ever FDI. The Ruias sold Essar Oil to a consortium led by Russian oil major Rosneft, at an enterprise value of USD 10.9B (there was separate money involved for associated group companies like Vadinar Port).

With this deal, the group expects debt burden to reduce by 50%. Overall debt at group level could be as high as USD20B. This suggests most of the sale value would go towards debt servicing.

The impact of the deal was instantly felt on the banking system. ICICI Bank, India’s largest private sector bank, which had a large exposure to the Essar group, jumped 7% on the day this deal was announced, and has risen since. At the time of writing, the stock is up 13% from the pre-deal close. In market cap terms, this is a USD 2.8B gain.

All this is good for the banking system, the rupee and the Indian economy. It becomes even better when you consider that the promoters Ruias have pretty much made no money whatsoever in setting up and running Essar Oil.

You read it right. For a company spanning around 2 decades, it appears the Ruias may have made zilch for all their family effort, plus the risk they had taken in terms of corporate, and maybe personal guarantees against bank loans.

Since we don’t have full information, this is what we are assuming – almost entire proceeds will go towards reducing debt. This means the only money Ruias may have made would be from dividend income, and salaries for family personnel.

On this count, the situation appears to be like this: in terms of data since FY02, Essar Oil hadn’t paid any dividend (as per equity database Ace Analyzer). The database does not show data before this. As per FY15 annual report, the only family member directly involved with Essar Oil was Prashant Ruia, who was chairman of the company. His remuneration for FY15 was Rs 43 lakh (Rs 4.3million). This is negligible for a company with a revenue of almost USD15B.

In other words, since the last 15 years or so, Ruias may have earned nothing directly out of Essar Oil. Assuming other than the principal amount of their investment in Essar Oil, they use the rest of the deal money to pay bankers, that’s 15 years of no return for an incredible effort of setting up India’s 2nd largest refinery, and one which pretty complex configuration. It wasn’t just a refinery; Essar Oil has 2500 retail outlets, India’s largest oil retail network in the private sector.

Contrast this with what the other big private sector player in India in oil refining – Mukesh Ambani – makes from his company Reliance Industries. Mr Ambani earned dividend of Rs 1400+ crore in FY16. In the last 5 years, he has earned dividend income of almost USD1B. He also draws a salary, which he has capped at Rs 15 crore per year for the last 8 years. This is besides his wealth from shares of RIL, which is about USD24B.

That is more like it. Unless you are making huge amounts of money, why would you create such a large business?

Unless some of the data above is wrong, this leads to a natural question – just why did the Ruais do it? Take such a huge financial risk, and then make no money.

Group chairman Shashi Ruia said in the press release “It is a historic day for Essar. The transaction demonstrates our unique ability to build world-class assets”. Note the stress on creating history, and doing something world class. Prashant Ruia’s quote also emphasized the group’s ability to create benchmarks. He said “The deals we have done have led to an FDI infusion of more than $30 billion into India”

I guess all this is not easy for a simple mind like mine to understand. Can the urge to create national or global benchmarks be so strong, that one can labour for decades for no financial reward? I don’t have it, many of us middle class Indians, who can’t look beyond their next salary cheque may not have it either.

And on top of it, the paradox is: we, who want to work for money, are poor or middle class; and those who are working for no visible money are not. Maybe this is one of those god’s mysterious ways of dispensing justice and allocating wealth.

In sum, I think it is time the media and analysts revised their opinion about Essar group, and recognize their selfless deeds for what they are worth.

 

PS: I guess this transaction and the 2 decade history of Essar Oil deserves a case study by Harvard Business School – what say?

Posted in Energy, Trends, What was that Again? | Tagged: , , , , , , , , | Leave a Comment »

Is it a real business, or is it a Po*#x*

Posted by fairval on October 13, 2016

As part of our transaction advisory work, we do considerable work in pharma / healthcare space. We also have our own angel platform which invests solely in pharma / heatlhcare startups. In this, we have several HNIs who are business owners from the same space – pharma / healthcare.

In other words, we regularly meet and talk to people operating in this space. Often these meetings come about when we are representing a client from healthcare industry, and on its behalf are talking to either a fund or HNI for funding.

In the last one month, in 3 separate meetings, we got asked roughly the same thing (about our clients) – is it a real business, or is it a P*#$@+?  No reflection on the clients, but is there something not quite right with this company they want to compare it with? From being the toast of the startup world, why are several people seemingly bad mouthing it?

We have no idea of whats going on with this company, but lets see if this becomes one of these standard questions one must ask a startup – are you a real business, or a P*#$@+?

Posted in Angel Investing, PE/VC, Uncategorized, What was that Again? | Tagged: , | Leave a Comment »

Article in The HinduBusinessline – Unit Economics explained

Posted by fairval on September 23, 2016

Lately, have been writing a monthly piece for The Hindu Business Like. The latest article was on key metrics an investor should check when evaluating an ecommerce startup.

6 questions for e-com start-ups

Posted in Angel Investing, Uncategorized | Tagged: , , , | Leave a Comment »

How to value angel investments

Posted by fairval on July 13, 2016

My column in Hindu Businessline this Monday focussed on the issue of – how to value an angel deal.

In short – there is no method really to value angel deals. Most investors use absolute numbers within a certain range to invest, without necessarily linking them to business numbers.

For example, Silicon valley entity Y Combinator, which is more of a accelerator than an angel, has a specific, one size fits all formula. It invests $120K for 7% stake, which means it values the startup at $1.71m post money. This is roughly about Rs 10 crore pre money.

Some Indian startup funds seem to follow this also. India Quotient invested Rs 2 crore in one company I know at Rs 10 crore pre-money. Don’t know whether it is their standard formula.

Most HNIs though tend to be stingy. They like to stay in single digits in pre money valuations.

Instead of a flat valuation, it is possible to do a bit of structuring, like discount to Series A. Or take a metric like orders processed, and link valuation levels to few pre-defined ranges of orders processed. These kind of investments will need a cap/floor ideally. Some investors don’t like to keep such metrics for valuations, since it can skew management focus.

 

 

 

Posted in Angel Investing, The Science of Investing, Valuation | Tagged: , , , , | Leave a Comment »

Deals slowdown strikes again in May’16

Posted by fairval on June 8, 2016

2016 so for continues to see less VC/PE activity compared to 2016. Reported investments fell again in May. YTD amount is down 22%

 

PEdeals

Posted in PE/VC, Uncategorized | Leave a Comment »

What’s a basic angel portfolio?

Posted by fairval on May 30, 2016

While writing on this blog has been suffering due to various issues, have just started a small series on Angel Investing in Hindu Businessline.

The first one deals with – what should be a min folio an angel investor must aim for.

Angel investors must aim for at least 8-10 deals

 

Angel investing has taken off in India in a big way in recent months. In early 2014, on an average, around 10 angel deals would be reported a month. From the second half of 2014, the angel space has seen a rising trend. The monthly deal count crossed 30 in August 2015, and has remained in the 30-40 range since then; an increase of about three times in a year.

The spurt in news flows on start-up investing seems to have caught the attention of the average high networth individual (HNI). For every HNI who is already an angel investor, there may be five new investors actively considering this asset class…..(click link above for full article)

 

Posted in Angel Investing, Uncategorized | Tagged: , , | Leave a Comment »