Investment bankers give thumbs down to Infy deal

TIMES NEWS NETWORK[ SATURDAY, JUNE 30, 2007 12:09:14 AM]

MUMBAI: A few months ago, before its entry its into the elite Nasdaq-100 index, the then CEO Nandan Nilekani indicated that the first major acquisition by Infosys could well be in Western Europe or in the BPO space, in response to the oft-repeated query on its acquisitions. On Thursday, market reports seemed to indicate that Infosys was not only eyeing companies in Western Europe but a player that’s almost thrice in revenues, Capgemini. Indian IT companies have been trying to break into the high-margin consulting business but without much success. For Infosys, consulting revenues made up just a little over 3% of its topline in FY07. According to estimates of research firm Gartner, the global IT consultancy business today is around $55 billion, and expected to grow at a CAGR of 7% to $71 billion by 2010. Consulting is an opportunity, no Indian IT firm with global ambitions can afford to ignore. An inorganic growth strategy may prove to be the driver and the impetus that the business needs, since none of the players have been able to crack it so far. Capgemini would provide this to Infosys. The reactions to whether such a move will actually benefit Infosys have been mixed in the analyst and investment banking community. While the consultancy business and a strong European presence of Capgemini are clear strengths that Infosys will gain from, the likely valuation of Capgemini and the potential hit that Infosys will take in its profitability margins, are getting the thumbs down from i-bankers. Abhay Aima, head of equities and private banking group, HDFC Bank, is being cautious about the deal. Says Aima, “While in the long term it may be a brilliant strategy, what matters to the investor is what the stock swap and the valuation will be in the short term. That is assuming the deal does indeed happen — right now, both companies have denied it.”

Airtel launches services in Europe

TIMES NEWS NETWORK[ FRIDAY, JUNE 29, 2007 03:15:15 AM]

LONDON: The Bharti group launched its first foray in telecom in the European market on Thursday, with the launch of its services in Jersey, Channel Islands. Jersey Airtel, a subsidiary of the Bharti Group, on Thursday announced the launch of its mobile services on the Island. The company will offer products and services under the Airtel-Vodafone brand to customers on the Island, over its full 2G, 3G and HSDPA enhanced network. Speaking to ET, Sunil Mittal said; “We are making a small beginning for Bharti in the overseas market; we hope to learn a lot from it.” Jersey, along with Guernsey, is a crown property off the coast of France, is one of the world’s leading offshore financial centres with an exclusive focus on financial services, and a playground for the rich and financially famous. Jersey’s GDP and per capital are among the highest in the world, topping most developed nations. The services are being launched under the Airtel-Vodafone brand name. The company said that Sunil Bharti Mittal, chairman & group CEO, served the first customer at the Airtel-Vodafone shop, centrally located in Queen Street, St Helier. Commenting on the launch, Mr Mittal said, “This is a special day for all of us at Bharti and we are delighted at the launch of our services in Jersey. We are committed to bringing world-class services to customers and adding value to communities and businesses on the Island.”Jersey Airtel will give European customers a taste of Indian mobile pricing and services; which are far cheaper and more flexible than what most of Europe is used to. Customers are being offered significant discounts if they choose to keep their existing handset. Pre-paid customers will get flat rates across all networks in Jersey and another flat rate to all networks across the EU including UK. All of these are still unheard of in Europe, where customers mostly have to pay higher rates for calls from mobiles, to other networks, and so on. David Watson, chief executive of Jersey Airtel, said, “We are confident that our customers will be celebrating with us when they experience first-hand the best in global mobile telecommunications. There will be important benefits for both the Jersey consumer and business customers.”

RCoM to make handsets, ties up with Taiwanese co

TIMES NEWS NETWORK[ SATURDAY, JUNE 30, 2007 01:47:59 AM]

NEW DELHI: Finally, Reliance Communications (RCOM) is set to make handsets in India. After years of speculation, India’s second-largest mobile telecom operator and the largest player in the CDMA space is getting into a joint venture with Taiwan’s Cal-Comp Electronics to manufacture CDMA handsets in the country. The manufacturing plant is slated to be operational during the first half of 2008. RCOM is also learnt to have placed an order of nine million additional handsets with Cal-Comp. “Due to the fast-growing handset market in India, Cal-Comp plans to set up a joint venture with the client to manufacture handsets in India, with the planned investment project likely to be carried out in the first half of 2008,” Cal-Comp chairman Rock Hsu said in Taiwan, without naming the client. He, however, said that his client was a CDMA operator in India which has increased the order size for 2007 to 12 million units from three million units. With the proposed JV, Cal-Comp, which has manufacturing plants in China and Thailand, will join Nokia, Sony Ericsson, Motorola, LG and Samsung to add to the 51 million handsets likely to be made in India this year. India produced nearly 31 million mobile phones in 2006 worth about $5 billion. Asked about plans to make handsets in India with Cal-Comp as the JV partner, the RCOM spokesperson declined to comment. The move to place a large handset order and enter into a JV with an established player will help RCOM preempt Vodafone-Essar, which plans to launch a series of ultra low-cost bundled handsets (mobile connection and a handset) in collaboration with China’s ZTE to get a bigger pie of rural India and increase its market share. Vodafone’s low-cost handsets are expected to be priced between Rs 1,000 and Rs 1,600. This apart, market leader Bharti has similar ambitions in the bundled handset space and is in talks with many mobile phone manufacturers for customised handsets for its new subscribers. So it is only logical that RCOM is planning to make handsets in collaboration with a known player. The Anil Ambani-owned company has been pursuing an aggressive handset-driven expansion plan and in the last two months kicked off a series of price war in the handset category which began with the launch of the Rs 777 Classic range. RCOM sold over a million units of the Classic range within a week of its launch. RCOM followed it up with the launch of colour handsets beginning at Rs 1,234 and sold over a half a million in the first 10 days. Subsequently, RCOM introduced FM radio mobiles at Rs 1,888 and Rs 1,919. The price wars resulted in RCOM’s rival in CDMA Tata Teleservices launching handsets below Rs 1,000 bundled with its mobile connection and market leader Nokia choosing India for the global launch of its latest low-cost phones. In addition to CDMA handsets, Cal-Comp also manufactures PDA handsets, chordless phones, printers, VoIP phones, GSM phones and Bluetooth headsets. Cal-Comp also operates R&D centres in Thailand, Taiwan, South Korea, China, and Singapore. Last year, after a major tiff with RCOM over royalties on handsets, CDMA patent holder Qualcomm had said that it would share technology and provide licences to companies to manufacture CDMA handsets in India to bring down prices of mobile phone. Though Qualcomm had given the licence to HFCL to manufacture CDMA handsets in India about nine months ago, the company is yet to begin production.

Centre buys SBI stake from RBI for Rs 35k crore

Source: Economic Times

NEW DELHI, 29th June, 2007: In its costliest acquisition ever, the government on Friday bought out Reserve Bank of India’s (RBI) stake in the country’s largest bank — State Bank of India (SBI) — for Rs 35,531 crore. The Centre purchased 31.43 crore shares of SBI with a face value of Rs 10 each at Rs 1,130.35 per share. “The entire shareholding of RBI, aggregating 31.43 crore shares with face value of Rs 10 each, in SBI was transferred to the central government on Friday,” SBI informed the Bombay Stock Exchange (BSE). SBI shares surged over 4% to their 52-week high of Rs 1,531 on BSE. The scrip gained Rs 60.65 over Thursday’s close of Rs 1,470.35 on BSE. At close of trading, the scrip had settled at Rs 1,525.30, up 3.74% or Rs 54.95. A sum of Rs 40,000 crore had been provided in this year’s Budget for the transfer of RBI’s 59.7% stake in SBI to the Centre. The government has managed the transaction without resorting to extra market borrowings, a finance ministry official said on Thursday. The deal is revenue-neutral for the government since RBI is expected to transfer the surplus to the Centre during the first half of August, after about 45 days, as its yearly dividend. “It will go through smoothly. Funds are in place, we are raising the money through treasury bills and we might also use some of the government surplus,” a senior finance ministry official said. It is understood the government has dipped into the ways and means advances (WMA) for the transaction. WMA is a recourse provided by RBI to the Centre and states to meet temporary mismatches in receipts and expenditure. The government has also decided to acquire RBI’s shareholding in the National Bank for Agriculture and Rural Development (Nabard) and National Housing Bank (NHB) by June 2008. RBI holds 59.73% in SBI, 72.50% in Nabard and 100% in NHB. “For sake of greater transparency, the valuation of RBI stake in SBI was worked out as per Sebi guidelines taking February 28, 2007, as the ‘reference date’, the day on which the decision of the government to acquire RBI stake in SBI was announced by the finance minister in his Budget speech,” a finance ministry release said. The Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 — known as Takeover Regulations — per se were not applicable in this transaction, it said.

Have we reined in Inflation?

Source : Moneycontrol.com

Inflation for the week ended June 16 was at 4.03% as against 4.28% for the week ended June 9. The numbers have come in lower than what the market was expecting. The market estimated it at 4.13%.
The WPI, or the Wholesale Price Index was measured at 211. 8 in the week-ago period, that is, the week ended June 9. But, for the current week under review, it has come in at 211.7 points.

So, week-on-week, the prices of the primary articles and manufactured articles have fallen a bit, which explains why the Index is lower. Because of this, the YoY inflation has fallen sharply. It stood at 4.28% (for the week ended June 9) and has come down to 4.03%.

We are now close to 4%, where we had been almost 58 weeks ago. This can be seen as a major achievement on the inflation front; it is indeed, going lower.

Earlier, the Inflation for the week ended June 9 was at 4.28% vs 4.80%. The market estimate then, was at 4.43%.

Subir Gokaran, Chief Economist, Crisil, says, “Clearly over the last few weeks we have seen the Index come down or rather the rate inflation come down sharply; largely because food prices have started to return to some levels of normalcy. But manufacturing prices have been rising; the distinguishing feature of this week’s announcement is that the manufacturing Index has come down over last week. This means we are probably beginning to see the plateauing of manufacturing inflation.”

He has opined that if the aforementioned trend persists for a few weeks, we can basically conclude that the worst of the inflation spiral is over. “But this is looking at the first week, that we are seeing this pattern. So let’s wait and watch for a while,” he has cautioned.

A noteworthy aspect of the inflation numbers that have come in, is that it’s not just the base effect but it’s also coming down of prices in various sectors which is bringing down the total inflation.

Regarding this, Samiran Chakrabarty, Chief Economist, ICICI Bank, said, “We have been seeing a distinct trend in inflation going down; I don’t see that has changed too much. We have been positively surprised in the sense it has come down even further than we had expected and if you can drill it down to something - it’s something like primary articles prices have really gone down a week or two ahead of what it was last year. So that is why the base effect has got even more pronounced. Last year, these two weeks’ primary article prices had actually gone up.”

Fed stays put; how brief is the relief?

Source : Moneycontrol.com

The Fed springed no surprises at the meet last night. It kept the benchmark interest rate unchanged at 5.25%. The FOMC's predominant policy concern continues to be the risk that inflation will fail to moderate as expected. The FOMC statement released said that the tight job market may sustain pricing pressure.
For almost a year now, the Fed has snapped its streak of rate hikes, but how long will the Fed keep rates on hold?
Peter Hooper, Chief US Economist of Deutsche Bank, believes that the Fed may continue to be on hold for a while. He expects a sustained relief rally in the dollar in the near-term. He said, "The odds on a rate cut have slipped a great deal. We are at 50-50, maybe edging slightly on the side of rate increase, but Fed is a good way from either direction of move at this point. They have pretty solidly planted at 5.25% for sometime to come."
Though, he believes, there is still reason to be concerned on inflation.
So will there be a rate-hike?
Citing subprime as an issue in markets, Glen Maquire, Asia Economist, Societe Generale, doesn't think the Fed will be in a position to cut rates. He said, "Not withstanding the re-emergence of subprime as an issue in the financial markets, I think the risk is still overwhelmingly skewed towards higher inflation."
"So the risk of a cut is quite small and the probability is turning more towards rate hikes from the US Federal Reserve. We believe global growth continuing to be strong for the next two years above 5%. The Fed is likely to be raising interest rates in 2008, probably three times to 6%. The probability of rate cuts from the Fed is extremely low at this point," he concedes.
Prasenjit K Basu, Chief Economist, Daiwa Securities, said that there was no surprise from the Fed and no change in its approach. On why Asian markets aren’t reacting to the US Fed leaving interest rates unchanged, he said, “There was really no surprise from the Fed. It is no longer talking about elevated inflation and that’s the only significant change. Otherwise, there is no significant change in the Fed’s approach. I think the markets have already moved keeping in mind that the next move by the Fed is likely to be up rather than down, somewhere between December-February next year.”