Rural India a potential $500-bn market: McKinsey Survey

According to a McKinsey survey, the RURAL INDIA would provide a market worth $500-600 billion by 2020.

At a CII annual session, Bharat Nirman, the government’s design for rural infrastructure development, was the subject of a presentation by McKinsey CEO Adil Zainulbhai, who made a strong case for increased investment in rural areas.

Zainulbhai said homogenisation of rural and urban elite was incorrect and provided a four-fold classification for rural areas. Of the 593 rural districts that the McKinsey survey looked at, 67 were classified as urban cousins, 118 as those close to rural economic centres, around 160 as able districts with a basic minimum infrastructure and 248 districts as deprived.

“We have been able to establish a direct correlation between basic infrastructure and growth drivers; areas which have minimum infrastructure have up to 30 per cent more per capita income than deprived districts,” said Zainulbhai. “Bharat Nirman is on the right track,” he added.

KKR Acquires 85% In Flextronics Software For $900 Million In India's Largest Leveraged Buyout Deal

The world's leading buyout fund Kohlberg Kravis Roberts & Co (KKR) has acquired India's Flextronics Software Systems (formerly Hughes Software) for $900 million. Flextronics International, which owns FSS will retain a 15 per cent equity stake in the company, while the rest 85 per cent will be acquired by KKR in a leveraged buyout. Following completion of the transaction, CEO Ash Bhardwaj, FSS President Arun Kumar, and the existing management team will continue to lead the software business. It will operate under a new name, which has yet to be decided. The acquisition is KKR's first investment in India and second investment in Asia, following its 2005 investment in Avago Technologies, the former Semiconductor Products Group of Agilent Technologies. It is also believed to be the largest leveraged buyout and technology investment in India to date.

The deal is also significant as KKR hired Michael Marks, the CEO of chip maker Flextronics, to advise on Asia and technology investments. Flextronics had acquired 55 per cent in Hughes Software (now known as FSS) in June 2004 for $226 million. After that, it delisted Hughes from the stock market.

Air Deccan IPO in mid-May likely

Deccan Aviation has decided not to rope in any private equity investors for the present and plans to hit the market to raise approximately Rs 500-550 crore, sometime in the second week of May.

The initial public offering (IPO) for 2.45 crore shares is likely to be priced in a band of Rs 200-250. Two of the merchant bankers associated with the IPO, ABN Amro Rothschild and JP Morgan, may however, withdraw from it. The issue will now be lead managed by ICICI Securities, Enam and SBI Caps.

The reason for this, according to a senior company executive is that JP Morgan and ABN Amro have other commitments in May. However, should the IPO be delayed for any reason and hit the market only in June or July, these investment bankers may once again be part of the team.

While Deccan has been toying with the idea of a preferential allotment to private equity investors, even before the IPO, it was apparently taking too much time. The company needs to bring out the public issue before May 20; otherwise it will have to file a fresh prospectus with Sebi.

In fact Deccan was to bring the IPO in February, which got delayed because of a deal that the company was negotiating with Airbus. While ABN Amro and JP Morgan were comfortable with the public issue coming up in February-March, they now have other assignments.

However, sources say, the investment bankers were also not too comfortable with the pricing as indicated during the road shows overseas; they found it aggressive. At that time, the price being talked about was between Rs 300-325 per share.

The overseas investors have been a little wary of the aviation stocks because Jet Airways, which came out with its IPO in February last year, is currently trading below Rs 1,100.

However, the shortage of aviation stocks and the lower pricing should generate interest from both foreign and local investors, say merchant bankers.

Deccan Aviation incurred a net loss of Rs 19.5 crore for the year-ended March 2005, on a net income of Rs 305.5 crore. The loss for the six months ended September 2005, was Rs 72.5 crore, on a net income of Rs 328.86 crore.

The issue will result in a dilution of 25 per cent of the post-issue equity of Rs 98.18 crore and the price band of Rs 250-250 would mean a market capitalisation of Rs 2,000-2,500 crore. Jet, which trades at Rs 970 has a market capitalisation of Rs 8,378 crore.

India needs $550 bn in 5 yrs: Investment panel

Ratan Tata presents report to PM who has asked nine ministries for inputs within a month.

The high-profile Investment Commission, headed by Ratan Tata, has said that India needs to attract investments of up to $550 billion in the next five years if it wants to become an economic powerhouse.

Tata had presented the report to Prime Minister Manmohan Singh last month. The prime minister has now asked nine central ministries, including petroleum, power, civil aviation, telecommunications, textiles, tourism and food processing, for inputs within a month on what they intend to do about this.

A government official told Business Standard that the ministries would have to suggest measures to overcome impediments like poor infrastructure and labour inflexibility among others. Once this exercise is over, the Prime Minister’s Office will finalise the investment road map.

The commission has identified sectors like roads and highways, energy, civil aviation, textiles and garments, automobile components, real estate, construction, tourism and food processing as high priority areas.

In its report, the commission pointed out that the roads sector alone required investments of $30 billion by 2010. Given that road projects in the country are too small to attract big international players, the report has recommended that contracts be awarded on a build-own-transfer basis for projects of 300-500 km in length to attract international firms. The commission has also mooted the idea of private maintenance of highways.

Similarly, the report says that the power sector needs investments of $140 billion in five years to generate 90,000 Mw of electricity. At present, investment in this sector stands at $54 billion.

Highlighting the importance of the coal sector, the commission has said the sector needs investments of around $30-40 billion over the next decade to double production from 240 million tonnes at present.

Until now, the sector has attracted investments worth only $2.5 billion. The report also calls for major policy measures like doing away with Coal India’s monopoly on mining and sales.

The telecommunications sector needs investments of around $22 billion by 2010. For this, the report calls for putting the 74 per cent foreign direct investment norm on the automatic route.

Indian Pharma Cos are on a M&A spree..

Ranbaxy Closes Three Acquisitions In One Week

Ranbaxy Laboratories, India's largest pharma company, had last year announced raising of $1.5 billion in the form of GDR/FCCB/ADRs etc. The idea was to make some big ticket acquisition in the US or Europe. In February it lost out to Dr Reddy's Labs in acquiring Germany's Betapharm from UK private equity fund 3i for $570 million. But it seems Ranbaxy had an alternative plan. In the last one week, it made three foreign acquisitions. What are they? On March 27, Ranbaxy acquired the unbranded generic business of Allen S.p.A, a division of GlaxoSmithKline, in Italy, for an undisclosed amount. On March 29, it acquired the Romanian generic company Terapia for $324 million. On March 30, it announced the acquisition of a Belgian generic drugmaker, Ethimed NV, for an undisclosed amount. That's three acquisitions in one week. But there is more to come I am sure. And we are waiting for that big ticket acquisition of Ranbaxy

What makes Suzlon's Tanti tick?

Several Indian entrepreneurs have tried and failed to make money from the winds. Not so Tulsi Tanti, Founder & CMD of Pune-based wind energy turbine maker Suzlon Energy. Tanti (Age 47) is now #8 on the Forbes list of richest Indias with a personal net worth of $3.7 billion. His net worth is clearly a reflection of the phenomenally successful IPO of Suzlon in 2005 (which was preceeded by two rounds of private equity funding in 2004).


Says Forbes:
Faced with escalating power costs, this former textile producer moved into wind energy a decade ago, eventually building Asia's largest wind farm. In October listed his Suzlon Energy, in which he and 3 siblings own 70%. Expanding into the U.S., China and Australia.
Businessworld and Economic Times have published detailed profiles of Tanti and Suzlon's recent breathtaking $565 million acqusition of Belgian wind turbine gearbox manufacturer Hansen Transmissions.Says Businessworld:
This deal — the second largest ever by an Indian company — is Tanti’s biggest breakthrough ever. In the early 1990s, he was a passable entrepreneur with a Rs 40-crore textile business. But the textile mills’ power consumption was greater than the profits that they generated. So Tanti decided to set up windmills to cut power bills and discovered the wind power business. But he had no access to the technology needed to manufacture wind turbines.In 1994, Tanti acquired Sudwind, a bankrupt wind turbine company. That provided the technology base. Then, in 2000, he purchased part of the assets and technology of Airpack, a bankrupt company that made turbine rotor blades. The technology and demand for wind turbines in India (thanks to the tax incentives) helped him build a company. He ploughed on even as others like TTG Industries and NEPC fell by the wayside. In a few years, he became the market leader in India.