Category: Views

How big is Flipkart now?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While common-folk like us make purchases off Flipkart, the big daddy of global retail has announced its purchase of Flipkart.

Walmart has finally announced its decision to buy 77% stake in Flipkart for a whopping $16 billion.

While the nuances, contours, permutations and combinations of the biggest FDI transaction in India are being discussed, I can’t help but marvel at the gargantuan size of this shopping basket.

Sixteen billion dollars, pause for a breath, sixteen billion dollars for 77% means all of Flipkart is worth $20.8 Billion.

$20.8 Billion in the Indian currency is Rs 1,35,000 crore. If they ever thought of writing a cheque for this deal, the accounts person would think twice before putting the customary “only”, at the end of this amount!

If Flipkart was to list at current valuations, it would be the 19th largest company by market capitalisation in India.

As value-seeking Indians, we have a habit of comparing prices across websites, so I put myself in Walmart’s place and imagined what they could’ve bought  instead of Flipkart, if FDI in multi-brand offline retail was allowed.

Turns out, Walmart could’ve bought all the DMART, Big Bazaar, FBB, Brand Factory, Westside & Zara stores, and still have enough change to add all Shoppers Stop Stores to the cart.

So the Final Question Then – Has Walmart paid more for Flipkart than what it’s worth?

Not quite, if we compare it with the popular EV/Sales metric for retail companies.

However, one needs to bear in mind, Flipkart is loss making at an operational level while the others are alive and kicking, EBITDA downwards.

So the big question for Indian retail industry now is – will Flipkart’s pursuit of revenue hurt others’ profits, or will others’ focus on profitable growth outlast this investment fueled chase for scale.

Either way, us consumers have all the reasons in the world to rejoice!

Read our comprehensive coverage of the deal here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

What the rise of protectionism means for world order

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Second World War, in many ways, marked a watershed on the international stage. Many of the developments that we see today are an outcome of circumstances that led the world to go to war, and cause unprecedented death, destruction, and devastation. The fallout of the war was manifold.

The starting point was decolonisation. While individual colonies had robust independence movements going, the post-war trend was a world where people were equal. And equality could not be achieved with colonization. The second major trend was international institutions – such as the United Nations, the IMF, the International Court of Justice – that helped resolve either the issues of sovereign nations, or issues between sovereign nations.

The third cornerstone was globalisation and trade. It was believed that the closed economies that preceded the period of the Second World War, increased the hostility between nations, making war easier.

In 2018, all three seem to be in various degrees of peril, the most impacted being the principal of free trade.

Last week, China instructed western airlines to refer to Taiwan as a part of China and not an independent nation, on their promotional material. While it might be a stretch to call it colonization, it is apparent that the right of the Taiwanese to remain independent is under threat.

Chinese Imperialism

China has a modern version of imperialist ambitions.  China’s claims on lands, be it Arunachal Pradesh, be it the way it has swallowed up Tibet, be it the way it is nudging its way into the South China Sea – paves the way for other nations to flex their muscles vis-à-vis their not so strong neighbours. So, while colonies prima facie no longer exist, it is also because the nature of colonisation has changed. Be it the Middle East, or Afghanistan, African nations or Southern America – there are periodic bouts where outside control on the nation increases, primarily to control the nation’s resources, leaving the countries in a perpetual state of economic, social, and political instability. Another aspect contributing to this newer form of colonization is sovereign debt.

Recently China (yes, them again) took charge of the Humbantota port in Sri Lanka, after Sri Lanka could no longer service the debt that was undertaken, for China to build the port. The projected traffic to the port never materialised, and Sri Lanka found it too expensive to continue servicing the loan and run the country.

Unrest Everywhere

The real damage, to the global order, is however, the rise of protectionist tendencies especially in the west. Both the United States, and the United Kingdom were extremely gung ho about international trade when they were the exporters, are now looking at ways to pull up the drawbridge and restrict imports, now that they have become markets that consume rather than produce. In the last quarter of a century, the tide has turned. The Asian giants are the exporters, and the west is importing.

The jobs in the west have moved eastwards. And, this is causing political and social upheavals in the west. The United States has already imposed tariffs on steel and aluminum, ostensibly to protect its workers and markets from cheap Chinese imports – but it is impacting the rest of the steel producing world as well. Both India, and the European Union have asked to be exempted from the tariffs, but it is early days yet. India, has also used protectionism to safeguard the Make in India Initiative. Tariffs on smart phones are 20%, to encourage the manufacture of smartphones in this very large market. While tariffs offer a momentary respite, and give the impression that something is being done – the cost of an escalating tit for tat tariff regime will hurt all economies. But, to look at the tariff issue in isolation may provide a temporary solution without any long-term impact.

What the world leaders really need to do is sit down and have a conversation. The international world order is still determined by the outcome of the Second World War. The winners of that event still call the shots. The problem is that that world doesn’t exist anymore — it has moved on. The new world order is a lot different from what existed in 1945.

The problem is that the institutions and processes built, remain the same. Unless those are fixed, there is going to be greater economic and political chaos.

Harini Calamur works at the intersection of digital content, technology, and audiences.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

What the Walmart-Flipkart deal means for the Indian e-commerce sector

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Imagine you are back in 2007. What if someone told you that a decade from now, in 2018, you could pick up your phone, book a cab by tapping a button and it would turn up at your doorstep within a few minutes? What if they told you that you wouldn’t have to worry about leaving your wallet at home and still pay the cab driver and get through the rest of the day just fine?

My guess is you would have looked at your Blackberry handset and laughed. Why? Because back in 2007, Ola did not exist; Paytm wasn’t born. Heck, even Uber was two years away. The point I am trying to make is this: pundits who try to measure the worth of a truly disruptive company based on the business it does today will always end up looking silly.

Will The Armchair Experts Stand Up, Please?

Can all those armchair experts who poked holes in the “Flipkart model” raise their hands?

Critics kept pointing fingers at Flipkart’s burn rate, even as the company’s valuation surged to $20 billion in a little over a decade. In that time, thanks to Sachin and Binny Bansal’s entrepreneurial chutzpah, Flipkart has endured countless critics, a few down-rounds and all kinds of obstacles that entrepreneurs face only to emerge stronger.

Flipkart’s acquisition of Amazon has several broader ramifications for Indian internet enabled businesses and entrepreneurship as a whole.

One, it validates the Indian entrepreneurship story at a global level. Any half-baked analyst across the world will wax eloquent about India’s 1.3 billion population as the big opportunity, the growing middle class, increasing internet penetration etc.

But Walmart’s acquisition of Flipkart is the proof of the pudding: that a bunch of young entrepreneurs can build a business from scratch, scale it up to the biggest opportunity in Asia and eventually lure one of the largest company’s in the world to buy it. Flipkart’s acquisition has reinforced the India entrepreneurship story on the world map.

Two, the acquisition also proves that there are multiple models for growth. Critics and pundits who carped about Flipkart’s “discounting” model of growth will now have to re-evaluate if their old model of “profits and multiples of profits” is the only way to measure the success or failure disruptive companies.

Three, the acquisition also validates the fact that despite the logistical challenges a large and diverse country like India can throw up, desi startups that truly innovate on global tested models can survive and thrive in India. For instance, while Flipkart’s ecommerce model was inspired by Amazon, it adapted it by introducing several locally relevant innovations like Cash on Delivery (CoD), reverse logistics etc.

Missed Opportunity for Indian Conglomerates

Finally, there is a lesson in this acquisition for the Indian conglomerates. For them, this acquisition is a missed opportunity. Who were the first to wake up to the opportunity that tech enabled startups threw up? It was the Tiger Globals and the Softbanks of the world. These foreign investors were the first to spot the opportunity in companies like Flipkart and are reaping the benefits today.

Today, seven out of the top 10 most valued companies in America are tech companies. That’s the way the world is going and India conglomerates will lose out if they don’t continue investing in this space.

For Indian conglomerates, it’s a bit like somebody who sat on a piece of land which had a massive gold mine underneath it and did nothing to mine it. Today, seven out of the top 10 most valued companies in America are tech companies. That’s the way the world is going and India conglomerates will lose out if they don’t continue investing in this space. If they want to become $100 billion entities, the old economy businesses of steel and cement are not going to get them there.

What does the acquisition mean for Walmart?  Walmart gets a solid head-start against rival Amazon.  Walmart and Amazon have been on a warpath ever since Walmart sewed up a $3.3 billion deal to acquire startup Jet.com in August 2016. Jet has been the fulcrum for Walmart’s online shopping strategy. In turn, Amazon made a foray into offline retail in June 2017 when it snapped up Whole Foods Market for $13.7 billion.

With the Flipkart acquisition, Walmart gets a serious play not just in ecommerce but also in India’s $670 billion retailing market. What else could one ask for!

K Ganesh (@ganeshk03 ) is partner, GrowthsStory and promoter of BigBasket and Portea Medical.

Read our comprehensive coverage of the deal here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How the new categorisation of mutual funds impacts your portfolio

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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If you’ve been ignoring the many e-mails being sent by fund houses about the recent changes to your mutual funds, it’s time to think again.

Post Sebi’s rationalisation of schemes, we’ve seen that number of funds are  shrinking (although not as dramatic as expected), change in names and in some cases even significant changes in categories. Here is where it gets tricky.

A case in point is a scheme, which was hitherto in the ‘Hybrid – Balanced Fund’ category and now attains the categorisation of ‘Aggressive Hybrid Fund’.

On the face of it, the word ‘aggressive’ might send you into a tailspin… but guess what? Your fund was always aggressive with a 60% allocation to equity which could be managed within a range of 50-75%.

Additionally, the debt portion, which is marked at 40% could be scaled down to 25% on the lower end, but not exceed 40% on the upper end. So, all in all… the major change would remain the same.

Let’s now talk about a pure equity fund. There are funds belonging to the ‘Diversified Equity’ category, which have now moved to the ‘Large Cap Fund’ category.

A ‘Diversified Fund’ by it’s very name invests in companies regardless of size and sector. It diversifies investments across the stock market in a bid to maximise gains for investors.

The earlier mandate was simple – invest to maximise returns. The changed mandate reads – invest to maximise returns within the top 100 companies by market cap. This change has the potential to not just alter your returns but your risk profile as well.

Of late, a lot of investors have expressed interest in infrastructure funds. Now, as a sectoral fund, its mandate would be to invest in the infrastructure sector, which means companies involved in construction, roads or power.

But if it is categorised as a thematic fund, the mandate can be extended to all related sectors such as cement, capital goods, building products and even housing in some cases. As you can see, the scope and flexibility of the fund increases dramatically.

Another case is the very popular midcap funds. Here, the universe, as defined by the new Sebi rules, would be companies with a market cap ranking of 101 to 250 strictly.

Now, the major differentiator in this category has always been the stock picking ability of the said fund manager… but, the lack of flexibility may curtail his/her choices, thereby impacting your returns.

Infact, if anything small cap funds may find themselves at an advantage as a larger universe opens up for them.

Likewise, debt funds too will have to clearly define the maturity duration of their portfolios. This may make it easier for the investors to choose funds, but the flexibility of the fund manager may impact returns.

A fund previously known as ‘Aggressive MIP’ (monthly income plan) is now in the ‘Equity Savings Fund’ category.

Here, as an aggressive MIP, the fund might have been investing 16-30% in equity and the remaining in debt.

As an equity savings fund, it will cap debt exposure at a maximum of 35% and will essentially become more tax efficient as it will be taxed as an equity oriented fund.

As well, investors should monitor how the past performance of merged/changed schemes will be shown. Sebi has clarified that:

1.  Weighted average performance of both schemes need to be disclosed when two schemes with similar features are merged and the surviving scheme has similar features as the originals.
2. Past performance of surviving scheme to be disclosed when two schemes are merged and the resultant carries only the attributes of one.
3.  Past performance need not be provided when the merger of two schemes results in an entirely new third variety.

This is not to suggest that past performance is a guarantee of future returns. Whatever the case may be, the underlying thread remains that only a clear understanding of the funds you invest in can help you meet your objectives and maximise the returns.

Investors have an option to exit from a fund if they do not agree with changes proposed by the fund house.

This period is clearly mentioned in the communications from the fund houses explaining the changes to investors. However, one must consider tax implications of any decision to exit from a scheme.

Disclaimer: Consult a personal finance adviser before making changes to your portfolio.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Sebi must recast listing rules for the sake of feasibility

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A lot of debate has been going on with regard to compliance with various Sebi regulations by companies undergoing corporate insolvency resolution procedure (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). Pursuant to its board meeting on March 28, the capital markets regulator had also issued a discussion paper in this regard. This paper has drawn attention to application of such laws on existing companies too (which are not undergoing CIRP).

This article will relook some of the provisions of the Sebi (Listing Regulations and Disclosure Requirements) Regulations, 2015 and emphasise the need to rewrite the same in light of the practical issues faced by the listed entities in general and also for the companies undergoing CIRP.

Disclosure of Defaults

In August 2017, Sebi issued a circular mandating companies whose securities are listed on stock exchanges to disclose every default in payment of interest and instalment obligations on debt securities or commercial loans obtained from banks or financial institutions. However, the application of this circular was deferred apparently due to resistance from other regulatory bodies and some market participants. Again, in the recent discussion paper, Sebi has recommended that receipt of demand notices under Section 8(1) of IBC should be disclosed as material information under Regulation 30.

As it involves price-sensitive information, such events should definitely be disclosed to the shareholders of the company. For an effective corporate insolvency resolution framework, identification of valid claims is a must. However, the implementation of this proposal requires some modifications.

At times, the listed corporate debtor may make due payment on receipt of such demand notice or in certain cases, genuine disputes might be involved in the claims of the operational creditors. Similarly, disclosure of every minor demand notice to the stock exchanges is not really needed as it may amount to dissemination of noise.

It would be better if such claims are classified and made subject to a materiality threshold (say, Rs 5 lakh) and time (say, default of more than three months) so that every delay of a vendor’s bill does not result in disclosures.

Similarly, the companies undergoing CIRP should disclose every event such as invitation of claims by resolution professionals (RPs), meetings of creditors, number of bids received by RPs, etc, under the head of ‘material events’, as proposed in the discussion paper. Although a company undergoing CIRP will have less information to be shared with its stakeholders, nonetheless, it would not be advisable to impose such onerous disclosure obligations on RP.

The RP follows a strictly supervised time-bound procedure from the filing of an application with the NCLT until the approval of the resolution plan by NCLT. Imposing additional disclosure requirements, ordinarily prescribed for the board of directors, board committees, compliance officers, and/or the key managerial personnel, would be unwarranted and the RP may not be able to allocate sufficient time to comply with such disclosure norms, resulting in delays and technical unintentional non-compliance. To avoid such issues, appropriate safeguards must be provided by Sebi and RPs may be required to make necessary disclosures widely on a best effort and good faith basis. This will ensure they do not misuse non-public information and are reasonably diligent with disclosure standards on best effort basis.

In its March 28 board meeting, Sebi also accepted some of the recommendations made by the Kotak Committee, imposing additional disclosure and compliance norms on listed entities. A bigger-itemised compliance checklist may not be an effective tool to improve  governance. Instead, Sebi should enforce the existing provisions more rigorously and impose liability on directors for failure in performing their fiduciary duties. Sebi may provide a principle-based guidance note which elaborates the context and examples of fiduciary duties on board members, such as, duty of care, duty of loyalty etc. and their principle responsibilities while acting as directors of such companies.

Inflexible Requirement 

The existing requirements under Regulation 31A for reclassification of promoters into public shareholders and vice versa are very rigid and unclear due to which frequent requests for interpretative letters under Sebi’s Informal Guidance Scheme are made. The current law is so inflexible that even those people fighting legal battles with the promoters are considered promoters. With regard to the companies implementing resolution plan post-CIRP, the discussion paper proposes a threshold of 1% for declassification of promoter. However, this is very low and should be increased.

Nevertheless, this proposal is a step forward towards revamping the promoter re-classification laws and can be extended to all other listed companies. Sebi may form a flexible policy providing the criteria for classifying an entity as promoters and delegate the determination of actual declassification, on case-to-case basis, to the stock exchanges.

Similarly, for companies that are implementing resolution plan, there would be various stakeholders, sometimes acting as a group or consortium of investors, who may acquire substantial shareholding of the listed corporate debtor, replacing the erstwhile promoters. These may be in the form of strategic and financial investors who would have jointly acquired control of listed corporate debtor. Ideally, the two should not be clubbed together as they are not acting in concert except for the purpose of taking the corporate debtor out of its near-death existence.

A clear policy should be made of whether the entire acquirer group would be treated as promoters or whether subjective criteria of control or threshold of significant shareholding be provided.

Sandeep Parekh is a partner and Deepika Goyal is an associate at Finsec Law Advisors

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

ICICI Bank: Highest ever quarterly slippages lead to stress in the balance sheet

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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ICICI Bank reported its highest ever quarterly slippages at Rs 15,737 crore compared to Rs 4,380 crore last quarter.

In Q2FY18 and Q3FY18, 18-20% of slippages — fresh additions to non-performing assets — came in from known stressed assets.

However, slippages from known stressed assets were 77% in the fourth quarter. This is a positive sign, as residual stress in the balance sheet is on the lower side.

Gross Non-performing Assets in absolute value rose 17.4% over last quarter to Rs 54,063 crore, and the GNPA ratio rose to 8.84% compared to 7.82% last quarter.

Total deposits grew by 14.5% for the year boosted by low cost deposits, which now form about 51.7% of total deposits, up from 50.4% last quarter.

Overall, stress in the balance sheet stands at Rs 13,365 crore, and accounts for about 2.6% of the loan book.

A large part of the slippages came in from the stressed portfolio and led to a substantial fall in the residual stressed portfolio.

Unlike the second and third quarters of 2018, where more than 80% of slippages came in from the normal standard book, in the fourth quarter, about 77% of slippages were recorded from the watchlist and the restructured book.

The watchlist fell by 75% this quarter to Rs 4,728 crore and accounts for  0.9% of the book.

Slippages of Rs 15,737 crore is the highest ever quarterly slippage for the bank. However, of this, Rs 9,968 crore came due to RBI’s circular on 12th February.

The bank classified three borrower accounts in the gems and jewellery sector as fraud amounting to Rs 794.9 crore and said it had made a provision of Rs 289.5 crore for the same.

The recognition of NPA’s means that leftover stress on balance sheet has reduced substantially. The Bank said it has total stress (including non-fund based exposures) of Rs 13,365 crore which forms about 2.61% of the book.

Large part of slippages come in from stressed portfolio leading to substantial decline in residual stressed portfolio

Slippages at Rs 15,737 crore is the highest ever quarterly slippage for the bank. However, of this, Rs 9,968 crore came due to RBI’s circular on 12th February.

The recognition of NPAs means that leftover stress on balance sheet has reduced substantially. The Bank said it has total stress (including non-fund based exposures) of Rs13,365 crore which forms 2.61% of the book.

Stress in the balance sheet is lowest in 9 quarters.

Alert: Bank and my calculation differs owing to inter-connected loans on which I don’t have the clarity

Low cost deposits share is the highest ever for the bank

Deposits grew by 14.5% YOY to Rs 56,0975 crore vs Rs 51,7403 crore. The Low cost deposits at Rs 2.9 lakh crore, up 17.5% YOY and 11.2% QOQ.

Low cost deposits share improved to 51.7% vs 50.4% YOY and vs 50.4% QOQ. Low cost deposit share is the highest ever for the bank in last 13 quarters.

Advances grew by 10.4% YOY to Rs 51,2397 crore. Loan growth was largely led by retail portfolio which grew by 20.6% YOY. International book de-grew by 13.6% YOY and 8.8% QOQ.

Earnings were ahead of estimates

Net interest income was at Rs 6,022 crore vs CNBC TV18 poll of Rs 5,863 crore. Loan growth coupled with highest ever share of low cost deposits aided in net interest income growth. Net interest margin improved by 10 basis points  QOQ to 3.24% vs 3.14% QOQ.

Domestic net interest margin improved by 17 basis points to 3.67% vs 3.5% QOQ. However, International NIM is as good as invisible, lowest ever for the bank as the bank is concentrating on de-growing its international balance sheet.

Fee income growth was in line with loan growth. Core fee income was at Rs 2,755 crore, up 12.6% YOY and 4.4% QOQ. The bank reported a net profit of Rs 1,020 crore vs CNBC-TV18 poll of a loss of Rs 13 crore.

Asset quality deteriorates due to highest ever quarterly slippages

GNPA is the highest ever for ICICI Bank, while provision coverage ratio is on the lower side in last 13 quarters. Gross NPA of the bank increased to Rs 54,063 crore vs Rs 46,039 crore, up 17.4% this quarter.

Gross NPA ratio rose to 8.84% vs 7.82% QOQ. Net NPA was at Rs 27,886 crore vs Rs 23,810 crore, up 17% QOQ.

Provision coverage ratio declined to 53.6% vs 60.9% QOQ. The management said that they intend to bring down net NPA to less than 1.5% by March 2020.

Domestic subsidiaries performance was healthy, however, UK subsidiary reported a huge net loss

Domestic subsidiaries reported a profit of Rs 916 crore, up 8.9% YOY, while ICICI Bank UK reported a net loss of Rs 3170 crore in Q4 FY18 due to higher provisions on Indian linked loans that it provided for in Q4.

Currently, CLSA, Nomura, Jefferies, Goldman Sachs, Axis Cap and Deutsche Bank have a “Buy” rating on ICICI. Morgan Stanley has an “Overweight” rating on the stock, while Credit Suisse  has an “Outperform” rating on the stock.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why the Singh brothers must step down immediately from SRL Diagnostics board

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

On May 6, the Manipal-TPG submitted its final and revised bid for Fortis Healthcare. It was a five-page press release that outlined a new structure, but carried the same valuation as before.

The new structure has Manipal merging with Fortis at Rs 160 per share and doesn’t require a demerger of the hospital assets. It entails an upfront offer of Rs 2,100 crore via preferential allotment to address immediate liquidity concerns. Manipal-TPG had earlier proposed a demerger of Fortis’ hospital business, which it valued at Rs 6,322 crore.

Under the new structure, Manipal-TPG will not buy out the 5% of stake that Fortis owns in the diagnostic unit, SRL Diagnostics, as it had proposed earlier. The consortium had earlier offered to buy out 31% stake of the private equity investors. The valuation of SRL stands at Rs 3,600 crore.

Fortis owns 57% of SRL.

While that is on the deal, what caught my eye was paragraph 2.2 on page 3 of the press release. Manipal-TPG mentioned that after it acquires the PE stake in SRL, a new shareholders agreement will be entered into between Fortis, SRL and Manipal.

Manipal-TPG  said ‘the board of directors of SRL (SRL Board) will be restructured so that no member of the promoter group of FHL (Fortis) is part of the SRL Board’. This statement is a new addition to the earlier Manipal-TPG bids.

While this addition has to do with the new structure proposed,  Manipal-TPG is also safeguarding themselves, said people familiar with the matter. In other words, it means the consortium wanted to ensure that the former promoters of Fortis — the Singh brothers — are not associated with the SRL board.

While much of the attention has gone to Fortis, little focus has been given to the granular details such as the board composition of SRL Diagnostics. The Singh brothers, who have stepped down from the Fortis board, continue to be a part of the SRL Diagnostics board and in fact, continue to control it, said sources.

Malvinder Singh is the executive chairman and Shivinder Singh is the co-chair of SRL Diagnostics, according to the SRL website.

Issues Related to Governance

Governance experts are questioning this arrangement. SRL Diagnostics is a material subsidiary of the Fortis. More importantly, the diagnostics unit is part of the merger and acquisition transactions related to the hospital operator.

Hence, the question governance experts are asking is why are the Singh brothers still in control of a material subsidiary of Fortis that is also an active part of the transactions. There has not been any explicit disclosure of them continuing on the SRL board.

Experts say it is a clear governance issue and governance reflects in one’s behaviour. Hence, in light of issues such as the litigation with Daiichi, the Japanese company which acquired the pharma company Ranbaxy from the Singh brothers, probe on possible siphoning of funds from Fortis, and delay in earnings due to lack of audit reports, the Singh brothers should have stepped down from the SRL board.

Besides governance, there is a growing fear that the lack of distance could risk entangling the assets in the legal hassles with Daiichi. By stepping down, the Singh brothers would distance themselves from the functioning of SRL Diagnostics and improve governance standards.

The question also arises on the rest of the SRL board and when it necessary steps be taken to restructure it. The board currently comprises eight members, with two members stepping down in March.

The current board members include associates of the promoters such as Lt General Tejinder Singh Shergill, Brian Tempest and Harpal Singh (all three were asked to be removed by investors Eastbridge and Jupiter from the Fortis board). Other members of the SRL board include Srinivas Chidamabaram of Jacob Ballas, Praneet Singh of True North and Meenu Handa.

It is important to note that some experts have brought up the fact that there are private equity representatives on the SRL board and hence will be more independently run. It is also possible that other board members might have asked the Singh brothers to step down.

But as of now, it has not happened – and that means the Singh brothers continue to control the SRL board.  ​

Ekta Batra is an anchor and associate editor, research at CNBCTV18. She has been tracking pharma and healthcare for almost a decade.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Private museums like MAP could change the way Indians view art museums

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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At a stone’s throw from Bengaluru’s Cubbon Park, the Museum of Art and Photography (MAP) is fast taking shape. MAP is the result of not just successful private enterprise in the world of art, but also of the Indian government’s apathy to what, artist and co-founder of the Kochi Muziris Biennale, Krishnamachari Bose, laments, “its failure to leverage the soft power of art and create a global image of India as the world’s contemporary cultural hub”.

Abhishek Poddar, the man spearheading MAP, is an art collector of repute and runs a mobile photography gallery, Tasveer, which hosts exhibitions in the best art galleries across India. “A 2011 UNESCO report spoke about the appalling conditions of India’s top eight museums, citing sub-standard maintenance. State subsidies are inadequate for 1,000 or so museums, besides heritage sites, libraries and archives. Private museums, and private and corporate patronage, are necessary,” he says.

Mammoth Collection 

MAP will be spread over a mammoth 45,000 square feet and host five galleries, besides a collection of over 15,000 objects, ranging from art, textile, photography, craft and design artefacts, spanning from the 12th century to the present.

With the state almost abandoning its patronage of art, private players have stepped in to play a significant role. One way, of course, is to donate their considerable art collection to the existing museums. The other crucial role is to set up private museums, which have played a stellar role in the growth of art in Europe and the US.

One of the first private museums to open its beautiful wooden doors, in 2012, in India, was Noida-located Kiran Nadar Museum. Kiran is the wife of HCL czar Shiv Nadar and the couple have been collecting art for years.  KNMA is located within an HCL campus, and has an outpost in a New Delhi mall. Besides exhibiting their considerable collection, the museum hosts thoughtfully curated contemporary art. “In fact, we are one of the few museums to have a rigorous programme in contemporary art in India,” says Kiran. A year ago, KNMA took modernist Nasreen Mohamedi’s retrospective to the Tate Museum in London and the Breur Met of the Metropolitan Museum of Art in New York.

A little further away, in the dusty bowls of Gurgaon, stands the Devi Art Foundation, established by hotelier Anupam Poddar and his mother Lekha Poddar in 2008.  The museum houses their collection and hosts exhibitions, like most private museums.

Swati and Ajay Piramal of the Piramal Group opened the Piramal Museum of Art in 2015, in the city’s congested corporate and residential enclave of Lower Parel.  Piramal began collecting when Nitin Nohria, the Dean of Harvard Business School, suggested that it may be a good way to enhance his asset base and share his love for art with the community. The Piramal Museum is spread over a modest 6,000 sq. ft. within the atrium of Piramal Tower. While the family’s hefty art collection forms the main exhibits at the museum, they constantly host exhibitions, such as the 30 Raja Ravi Varma paintings from the Baroda royal family collection that they brought to Mumbai.

Across the bay, designer and architect Pinakin Patel has set up a museum dedicated to the man he calls his guru, Dashrath Patel, which houses the work done by this doyen of design and art in India.

More Than Collections

But private museums will require more than just extensive collections to keep the interest alive. Amin Jaffer, formerly of Christie’s and now the curator of the Al Thani collection of royal jewellery (owned by the royal family of Qatar), once told me that the success of the museums depends on the quality of contemporary exhibitions they host. The focus should firmly stay on a select group of artists and a small number of genres.

Former Citibank boss and art collector Jerry Rao also believes that the power of their programmes will determine if they can actually contribute to the development and documentation of art in India.

Deepali Nandwani is a journalist who who keeps a close watch on the world of luxury.

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All that you need to know about the fierce takeover battle of Fortis

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Fortis Healthcare has become a lodestar of a frenzied takeover battle, with five entities bidding for the cash-strapped hospital operator.

The Fortis board set up an expert advisory committee, comprising Deepak Kapoor and Lalit Bhasin, to evaluate the bids by these entities that are jostling to buy a significant stake or acquire the company.  The board will meet on May 10 to decide on the advisory panel’s recommendations on the binding bids.

The deadline for submitting the final bids was May 1. The Manipal Hospitals-TPG consortium, one of the first bidders for the hospital, was exempted from the deadline and has until May 6 to match any new bids received until May 1.

Until May 1, the board received four binding bids from Manipal-TPG, businessmen Sunil Munjal and Anand Burman, IHH Healthcare of Malaysia and Radiant Life Care, backed by buyout company KKR. China’s Fosun International submitted a non-binding bid.

While the decision of the board will be depend on the best value and easiest structure, analysts are not ruling out it factoring in a key metric – experience of the bidder.

Here is what you need to know about Fortis and the bidders.

The Target: Fortis Healthcare

Gurugram-based Fortis Healthcare owns 34 hospitals and medical facilities across 10 states with a total of 4,445 beds. Fortis owns 29.8% stake in RHT Health Trust (RHT), the Singapore-listed entity that owns assets in 12 of the hospitals that Fortis operates. Fortis also owns 56.6% stake in SRL Diagnostics.

The combined revenue as of the third quarter of 2017-18 was Rs 3,727 crore with EBITDA margins of 6.4% and net debt of Rs 1,300 crore. Occupancy is at 72% and the average revenue per bed stands at Rs 1.4 crore.

Manipal-TPG: Early Mover

Manipal Hospitals, backed by private equity giant TPG, was one of the earliest bidders for Fortis. Manipal-TPG was forced to revise its binding bid after facing a storm of protests by shareholders. It is now proposing an open offer to public shareholders for buying 26% in the hospital business. The open offer price is Rs 121 per share.

In its revised offer, Manipal-TPG has raised the hospital valuation to Rs 6,322 crore against the previous Rs 6,061 crore. It also offered an immediate infusion of Rs 750 crore and also proposed to buy 5% stake in SRL from Fortis.

Manipal Hospitals, led by Rajan Pai, launched operations in the early 1990s. It is not listed and currently operates 11 hospitals with a total of 6,373 beds. Of these beds, Manipal owns a total of 2,973 beds and manages 3,400 beds. The group has added 1,100 beds in the past 18 months.

TPG owns 22% stake in Manipal whose majority of hospitals are in South India. Currently, Manipal has 45% occupancy, with 63% occupancy in older hospitals.

Revenue stands at Rs 1,500 crore, with margins at 15-16%, including the new hospitals.

TPG also has interests in other hospitals. It has invested Rs 220 crore in mother and child-care hospital chain Motherhood in 2016, and has a majority stake in Cancer Treatment Services International.

If Manipal-TPG acquires Fortis, the consortium will become a pan-India player with a strong presence in Bengaluru (1,600 beds) and the National Capital Region (1,900 beds).

The operational beds will rise to 6,567, with bed capacity rising to 7,658 with a total of 45 hospitals.

The Manipal-Fortis combine will become the No.2 hospital operator in India after Apollo Hospitals, which has 9,400 beds at 49 hospitals. The group’s consolidated revenue will jump to Rs 5,230 crore with margins of 14.2%.  Through SRL Diagnostics, Manipal will enter diagnostics also.

Munjal-Burman: The Family Consortium

The consortium-led by Sunil Kant Munjal of Hero Enterprise and the Burman family of Dabur submitted a binding bid to invest Rs 1,800 crore in Fortis with Rs 1,050 crore upfront. It also offered to divest SRL through an independent valuation. They are planning to buy out RHT Holding using funds from SRL.

Munjal is the head of Dayanand Medical College and Hospital in Punjab with 1326 beds, off which 800 are teaching beds.

The Burman family was earlier the promoter of Dabur Pharma, a company focused on oncology products. The family exited the company in 2008 by selling its 65% stake to Germany’s Fresnius Kabi for Rs 775 crore.

The total deal size for 73% stake in Dabur Pharma was Rs 872 crore. The Burman family currently runs a venture named HealthCare at Home. It is a joint venture with the UK-based HealthCare at Home and is backed by private equity firm Quadria Capital.

HealthCare at Home provides healthcare services at home for patients. This includes elderly care, physiotherapy, nursing and ICU facilities, among other services. The venture is targeting revenue of Rs 1,000 crore by 2019-20. The company is also planning to hire 4,500 employees to its current workforce of 1,300-1,500 by the end of 2018-19.

The company is present in around 40 cities in India. The Burmans are also present in diagnostics with a venture named Onquest, which has over 33 labs with over 200 collection centres. Anand Burman is also the co-founder of Asian Healthcare Fund that has investments in dental chain company Sabka Dentist and primary healthcare clinic Healthspring.

IHH Healthcare: The Singapore Connection

Malaysia-based IHH Healthcare has offered a binding bid of Rs 650 crore at Rs 175 per share for Fortis. Its offer to infuse Rs 3,350 crore at up to Rs 175 per share is subject to due diligence.

Listed in Malaysia and Singapore, IHH is owned by Malaysian sovereign wealth fund Khazanah. It runs a total of 28 hospitals with more than 10,000 beds and is present in nine countries.

IHH, which recently began listing India as a target market along with Malaysia, Singapore and Turkey, has six hospitals and three medical centres in India. In 2015, the company entered the Indian market on a standalone basis after acquiring 73.4% stake in Global Hospitals and majority stake in Continental Hospital.

Prior to that, IHH held 10.8% stake in Apollo Hospitals, but sold it in 2017 for nearly 2,000 crore. The sale translated to a 2.5x gain from its initial investment in 2011.

The company has now consolidated its operations under the Gleneages brand in India. As of 2017, the company has 1,192 operational beds in India, with occupancy rates of 63% up from 56% the previous year.

In 2017, IHH’s acquisitions in India turned EBITDA positive. The company’s latest quarterly numbers show that India operations grew 3.9%, with inpatient admissions growing 15.4%.

If IHH manages to add Fortis to its kitty, the total hospital and medical centre count will increase to 43 facilities, with over 5,500 operational beds. IHH, however, has run into a few hassles in India, especially the opposition by the owners of Continental Hospital to a rights issue that it proposed.

Radiant-KKR: The Other PE-Backed Bidder

Mumbai-based Radiant Life Care, backed by buyout firm KKR, entered the fray as the fifth bidder. It proposed a binding bid to buy Fortis’s Mulund Hospital at a value of Rs 1,200 crore.

Radiant is promoted by Abhay Soi.

The company is looking to refurbish its hospitals business. It undertook redevelopment of the 650-bed BLK Super Speciality Hospital in New Delhi in 2010 and the 350-bed Nanavati Hospital in Mumbai in 2014.

The bed capacity of both the hospitals has since expanded – 1,600 capacity for BLK and 1,000 hospital for Nanavati.

In 2017, private equity firm KKR bought a 49% stake in the company by investing 1,288 crore. KKR has also invested Rs 550 crore in Apollo Hospitals’ holding firm and provided debt funding of Rs 560 crore to promoters of diagnostic company Metropolis.

Fosun International: The Chinese Bidder

Of the five companies, China-based Fosun International is the only company that offered a non-binding bid.

The company offered, $350 million, or Rs 23,38 crore, for 25% of Fortis with an immediate infusion of Rs 100 crore.

Founded in 1992 in Shanghai, Fosun International was listed on the Main Board of the Hong Kong Stock Exchange in 2007. It has interests across industries ranging from pharma, health to fashion and financial services.

Fosun has stakes in over 10 healthcare related firms worldwide.In India, Fosun has picked up 74% stake in Indian pharma company Gland Pharma for $1.1 billion. Fosun does not have any presence in Indian healthcare providers.

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Sugar mills ask farmers to opt for pulses instead of cane

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian Sugar mills have asked farmers not to grow sugarcane to save themselves from financial problems, at a time when sugar production in the country has soared, creating a supply glut.

Farmers were asked to opt for crops with higher returns, commonly known as cash crops, or opt for crops which are in high demand by the government.

The mills have found this a convenient workaround from having to pay farmers and as the way to work around high cane availability, as they are legally obligated to buy the cane once it is grown.

Till 30^th April 2018, sugar mills have produced 310.37 lac tons of sugar during the current season.

The Union Cabinet on Wednesday approved a subsidy of Rs 55 per tonne on sugarcane crushed for the season starting October.

The subsidy will be directly credited to the Farmers accounts against the payment due with the Sugar mills.

The decision comes on the back of inability of the Sugar mills to pay the farmers due for cane, leading to cane arrears of Rs 20,000 crore.

A knee jerk reaction saw the sugar prices and sugar stocks surge , but the gains were short lived as the Rs 55 per tonne works to Rs 1550-1600 crore, compared to the cane arrears of Rs 20,000 crore.

The industry had reacted positively to the government’s decision.

The sugar sector has been facing heavy losses as they have had to pay high FRP ( Fair and Remunerative price) to the farmers as fixed by the government.

The mills would have been able to pay the price only if the sugar prices had not fallen so much.

Sugar producers Balrampur Chini and Dwarikesh Sugar said farmers should sow less cane as weak sugar prices had led to delayed payment for cane to farmers and suggested that farmers sow pulses such as moong and urad instead.

The FRP i.e the input cost for mills increase by 11% year-over-year, while the sugar prices in the season fell by near 20%.

The prices of sugar declined as the country is looking at record output estimated at 31 million tonnes and a comfortable carry forward stock as well.

Even as government has made it mandatory for the mills to export 2 million tons to flush out the surplus, there is hardly any merit there, as the global markets are also facing a surplus with high production not just from India, but also Thailand and the European Union, among other regions.

The Indian sugar prices in wholesale market are trading at a 28 month lows with the prices trading way below cost of production.

Exports at the current international prices are also a loss making proposition as the maths comes to mills facing a loss of Rs 14 per kg on exports.

And there comes the caveat, the production linked subsidy that the cabinet has announced on Wednesday will be given only if all government directives are fulfilled.

So unless the mill has exported its share of two million tonnes, only then would it can take benefit of the subsidy.

While there is no direct calculation involved here , but another way of looking at this is that Rs 55 per tonne works to Rs 1600 crore and if 2 million tonnes is exported, then essentially the relief works out to Rs 8 per kg.

If a loss of Rs 14 per Kg is being incurred on exports, that value now stands at Rs 6 per kg, but this comes into being only on the quantity of export.

And its not just India that is trying to tackle the problem of surplus and non profitability in sugar sector.

Brazil in recent weeks has seen shift away from Sugar to ethanol for better returns. Estimates how that Brazil output may decline by 6 million tonnes for 2018-19 from a region.

Brazil’s exportable surplus for the current year also has seen a decline to 22.2 million tonnes leading to calculations that Brazil global sugar market share would then fall from 50% plus to around 35%.

For the Indian markets while a lot is still desirable, the important fact is that, the payback is seen as a first step towards the financial assistance to the industry and farmers.

A group of Ministers in last meeting have also taken note of other options like bringing back the cess on sugar, revamping the ethanol policy, and also reducing GST on ethanol from the current rate of 18% to 12% .

The GST and the cess related matter is part of the agenda for the GST council meeting on May 4.

About 130 sugar mills are still operating in Uttar Pradesh, and it is expected that sugar production during the current season might end up between 315-320 lakh tons.

Mills in Maharashtra have produced 106.50 lakh tons of sugar till 30^th April 2018. Almost all the mills of the 187 sugar mills have ended their operations.  The remaining 15 mills are also likely to close in the next couple of days.

In Karnataka, all the sugar mills have stopped their operations and they have produced 36.30 lakh tons of sugar during the current season.

Sugar production in Bihar, Punjab and Haryana during the current season has reached record levels in their history at 7.10 lakh tons, 8 lakh tons and 7.25 lakh tons, respectively.

While all mills in Bihar have stopped crushing, few mills in Punjab and Haryana are still operating.

Other States like Gujarat, Tamil Nadu, Andhra Pradesh and Telangana have produced 10.90 lakh tons, 7.10 lakh tons and 5.30 lakh tons, respectively.

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