April  2014  

DC*  Updates  

Contents

Impact of Rupee depreciation on deals

Deal Insights

RBI Updates

Global Business and Financial Scenario

DISCLAIMER This Newsletter has been developed and compiled by the editorial team of Dandeker Capital Consulting Pvt. Ltd. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Dandeker Capital Consulting Pvt. Ltd, its associates, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. This publication (and any extract from it) may not be copied, paraphrased, reproduced, or distributed in any manner or form, whether by photocopying, electronically, by internet, within another document or otherwise, without the prior written permission of Dandeker Capital Consulting Pvt. Ltd. Further, any quotation, citation, or attribution of this publication, or any extract from it, is strictly prohibited without Dandeker Capital Consulting Pvt. Ltd’s prior written permission.

Outlook on Rupee Depreciation Reasons for Rupee depreciation

•  Strength of Dollar Index (DAX) on the back of

Federal Reserve announcing tapering of

Quantitative Easing (QE) which weakened most

peer currencies.

•  Current Account Deficit (CAD) i.e. excess of imports

over exports surged to 4.8% of GDP in 2012-2013.

•  Surge in global crude oil prices which forms 10% of

the import bill of India leading to higher subsidy

burdens.

•  Overall industrial outlook becoming dull with the IIP

and PMI Indices falling to multi-year lows.

•  Stubborn inflation rates which lead to fall in the

value of rupee.

INR  Deprecia2on  Chart  

Impact on Companies from the Rupee fall

Information Technology (IT) Pharmaceuticals Automobiles (with export dependence) Textiles Real-estate

Capital goods Power and metals Oil and gas

Sectorial  impact  of  INR  fall  

The rupee depreciation will be a negative for the

companies which import a majority of their raw

materials and also those that have dollar

denominated debts.

Total Foreign debt (FY 13)

Impact

Rs. 59,000 Crs. An 8.3% dollar rise has lowered the PAT by Rs. 500 Crore

Rs. 27,727 Crs. With dollar debt worth Rs. 20,000 Crore, rupee fall will increase burden by Rs. 1,500 Crore

Rs. 13,500 Crs. With 5% rupee fall, the debt will get re-instated by Rs. 675 Crores

Rs. 9,675 Crs. A drop of Rs. 1,450 Crore in operating profit if rupee is assumed at Rs. 58.50

Source : Bloomberg

Deal-making amidst uncertain rupee – M&A

Acquirer Target Sector Deal value US $ million Deal type

Outbound deals

Apollo Tyres Cooper Tire and Rubber Co. Manufacturing 2,500 Take-over

Oil India, ONGC Rovuma Area Block 1 Oil and Gas 2,475 Minority stake

Tata Consultancy Services Alti SA Information

technology 53 Take-over

Inbound deals

Ethiad Airways Jet Airways Aviation 379 Strategic sale

Mylan Inc Agila Specialities Pharma, Healthcare 1,800 Take-over

United States was not only the most favored outbound target for Indian acquirers, but also the leading country for inbound acquisitions in terms of deal value and deal volume. It is premature to attribute this healthy bilateral deal appetite to a reviving US economy and macro-economic indicators, but it surely augurs well for the remaining half of the year, considering Europe is yet to recover from economic headwinds and recessionary pressures.

Deals are subject to clearance by SEBI,CII

Source : Bloomberg

Deal-making amidst uncertain rupee – PE

Investor Target company Sector Deal Value US $ million % Stake

Qatar Investment Foundation Bharti Airtel Telecom 1260 5%

Goldman Sachs DEN Networks Media, publishing 110 15%

Baring Private Equity India Lafarge India Cement 260 14%

Temasek Holdings (Govt of Singapore)

Kotak Mahindra Bank Financial services 239 2.60%

Baring Private Equity Hexaware Information

Technology 450 71%

In all, deal climate in 2013 has proven to be resilient so far despite a sluggish start. It remains to be seen if the remaining months will continue the positive trend witnessed in 2013.

Source : Bloomberg

Performance of Major Outbound M&A deals

Investor Target company

Announcement date

Enterprise value US $ billion

Change in EBITDA %

Change in ROCE%

Tata Steel Corus Jan 2007 13.3 -54 1

Hindalco (AB Group) Novellis Feb 2007 6.2 238 8

Tata Motors JLR Mar 2008 2.3 92 79

Bharti Airtel Zain Telecom Feb 2010 10.7 -5 2

Outbound M&A deals were usually done by companies in the developed markets however large corporations have started acquiring stakes to grow their core competencies. For India companies the primary motivation is to (a) search for research and technology and (b) seeking an established market.

Financing  issues  

Regulatory  hurdles  

Taxa2on  issues  

Challenges  in  Outbound  M&A  deals  

Deal  Summary  

Key Pointers

Companies which have a majority part of revenues from exports have been on the target list for PE,M&A acquisitions.

MNC’s have been increasing their stakes in their Indian subsidiaries owing to the cheaper rupee.

Valuations for inbound deals in dollar terms have been attractive for global investors.

•  Venture capital and PE funds who had invested in 2009 have been seeing a 30% drop in the rupee because of which they would have to find better exits to arrive at desired IRR’s on their investments.

•  While some VC,PE funds have turned cautious due to the rupee depreciation, some have been scouting firms at mouth-watering valuations.

Deal  type Volume Value  (US  $  Billion)

2011 2012 2013 2011 2012 2013

Inbound 35 24 38 2.63 0.70 1.59

Outbound 28 32 17 3.69 3.32 3.33

Source : Bloomberg

Deal Insights Sahara Puts Its Three Iconic Hotels On Block

Online Portal Apartment ADDA Raises Angel Funding

Future Lifestyle Plans Brand Acquisition

PremjiInvest To Buy Stake In Myntra

Sequoia To Invest In Girnar Software

Morpheus Fund Makes Additional Investment In TVC Skyshop

Ajay Piramal Group Partners Canada Pension For Indian NBFC

Celio Raises Stake In Future Group JV

Hitachi Buys Prizm Payment

Google India Head Rajan Anandan Invests In TravelKhana

Experifun, Sudiksha Receive Seed Funding

IDG, RVCF, IvyCap Ventures Invest In Aujas Networks

Burman Family Partners Espirito Santo To Launch PE Fund

FreshDesk Secures Investment From Existing Investors

Arvind Lifestyle Brands To Form JV With Gap Inc

Facebook To Acquire Little Eye Labs

Meritnation.com Gets Additional Investment From Info Edge

Warburg Pincus, Faering Capital Invests In BIBA Apparels

Axis Bank To Sell Its Swipe, Payment Business

•  Macroeconomic outlook has moderately improved in H2 2013-2014 •  Inflation remains range bound and still a cause of concern •  Industrial outlook survey reflects weak business sentiment, moderation expected ahead •  CAD for 2013-2014 is expected to be lower than $ 60 Bn. •  Liquidity situation to remain tight going forward but no immediate rate hike in the offing. •  Pressure of rupee to be abating Financial papers Retail Payments at Crossroads: Economics, Strategies and Future Policies - G. Padmanabhan Ideas and Actions for Re-igniting India’s Growth and Shaping the Recovery - K. C. Chakrabarty Financial Inclusion - Deepali Pant Joshi Finances of Non-Government Non-Financial Private Limited Companies, 2011-12 Commercial bank survey  Statistics Wholesale Price Index (WPI) Consumer Price Index (CPI) Sale/Purchase of USD by RBI

RBI Updates

Global Business and Finance Scenario

Asia Pacific US

Euro Zone Worldwide

BNY Mellon Launches New Capital Markets Business in Asia-Pacific Indian Inflation Exceeding Estimates Adds Rate-Rise Pressure Export Surge Sets Up Big Surplus for China Why Asian property investors may fear US taper

S&P 500 hits record high Economy in U.S. Grows at 3.6% Rate on Bigger Inventories Twitter goes public on NYSE Dollar Strengthens Alongside Equities on Yellen Testimony

Euro zone business morale hits 27-month high Germany’s economy is actually giving the world what it want ECB holds rate at 0.25% amid fragile eurozone recovery Eurozone unemployment falls for first time since 2011

Berkshire Acquires $3.7 Billion Exxon Mobil Stake RBC to Take $152 Million Charge on Insurance in Fourth Quarter Why Facebook Wants Snapchat But Doesn't Need It

Thank you

Vignesh  Shankar  Director    

Hand  phone  :  +91  94455  66386  vignesh@dandekercapital.com    

K.J.Dandeker  Execu2ve  Director  

Phone  :  +91  4425220721  kjdandeker@dandekercapital.com    

Ganesh  Sathyamurthy  Director    

Hand  phone  :  +91  96000  01298  ganesh@dandekercapital.com