Finly May 2022

FINLY MAY 2022 | Issue No. 111

PVR-INOX: Is it an entertainment monopoly?

Intriguing Indeed

Sector Analysis

Eco Section

Petrodollars

Textile Industry

Sri Lankan Economic Crisis

CONTENTS 01

02

EDITO R IAL

TEAM F INL Y

04

07

C O VER ST O R Y

EC O SEC TIO N

PVR-INOX - Is it an entertainment monopoly?

Sri Lankan Economic crisis

10

14

SEC TO R ANAL YSIS

C O MPAN Y AN ALYSIS

Textile Industry

Welspun India

18

22

INTR IG UIN G IND EED

ENTR EPR EN EU R SHIP INN O VATIO N

Petrodollars

goDutch

25

27

PER SO N IN F O C U S

C ALL F O R AR TIC LE: WINNER

Kunal Shah

Abhay Wanchoo

ISSUE NO. 111, MAY 2022

Dear Readers,

Editor's Note

“Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.” - Arundhati Roy This pandemic is an opportunity to expand our knowledge by finding new ways to circumvent the circumstances, invest in the most intuitive ideas that come to our mind and surpass this havoc. As Ben Franklin rightly said, “An investment in knowledge always pays the best interest,” we at Finstreet are back with the next edition of our monthly magazine “Finly” for the academic year 2022-23.

Team FINLY has always been a dedicated group of people who put in a lot of time and effort to put this magazine together, and we can't thank them enough for their unwavering support and initiative.

The May 2022 edition's cover story revolves around PVR-INOX - Is it an entertainment monopoly?. The eco section describes the current situation of Sri Lankan Economic crisis.

Further, the Intriguing Indeed section delves into the concept of Petrodollars.

We are thankful to Prof. (Dr.) Pankaj Trivedi (Course Coordinator, MBA Core and Faculty Coordinator, Finstreet) for providing the much-required mentoring, support and backing to the Finly team.

HAPPY READING!!!

Moumita Biswas

Gaurav Bavkar

|Editor-in-Chief|

|Editor-Finly|

MBA A

MBA B

01

ISSUE NO. 111, MAY 2022

TEAM FINLY Faculty in-charge

Dr. (Prof) Pankaj Trivedi

Editing Team Editor-in-Chief

Moumita Biswas

Editor - FINLY

Gaurav Bavkar

Team Coordinator

Varun Nagur

Conceptualization & Design

Anirudha Kulkarni

Upendra Baliga

Varun Nagur

02

Content Team

Anshul Sharma

Anupreet Lall

Jonath Simon

Kartik Anand

Muskan Jain

Priyanka Acharekar

Tanisha Chaudhary

Tuneer Sarkar

Abhijeet Upadhyay

Moumita Biswas

Vidyathmika S

Viram Vora

03

| COVER STORY

PVR-INOX - IS IT AN ENTERTAINMENT MONOPOLY? Abhijeet Upadhyay| MBA-RM | 2021-23 Viram Vora | MBA- C | 2021-23

Only a month ago, everyone talked about a possible merger between PVR, India's largest multiplex network, and Cinepolis, India's third-largest multiplex chain. Then, just a week later, news surfaced that Inox, India's second-largest multiplex operator, was planning its massive acquisition of Carnival and Miraj Cinemas After that, you can guess what occurred.

Instead, PVR and Inox announced that they would merge to form PVR INOX, a new company. They will now control 50% of India's multiplex sector in one fell swoop - a merger of epic proportions. And if you're not impressed by this, consider this: for every Rs.100 generated at the box office, this behemoth might take home Rs42! The magnitude of this is astounding!

But why are they suddenly joining hands?

Why are two competitors who used to go toe-to-toe now becoming friends?

It doesn't take a genius to figure this out, but the pandemic is to blame if you're looking for a quick summary. Multiplex chains have had a challenging time in recent years. When the fear of an unseen illness loomed largely, people were locked up at home, movies weren't coming out thick and fast, and no one wanted to go to the theatres. Meanwhile, box office receipts have sunk to new lows.

According to some estimations, the Indian film business lost at least 15,000 crores due to the incident. It was a disaster.

It wasn't the only problem plaguing companies like PVR and Inox, to make matters worse. Netflix and Amazon Prime, for example, have increased their direct assault.

They persuaded filmmakers to distribute their films only on internet platforms, bypassing the traditional theatre distribution.

In other circumstances, filmmakers willingly shorten the theatrical window to release their films as soon as

04

| COVER STORY feasible via OTT platforms. They didn't have it with multiplex chains, and OTT players bribed them to strengthen their resolve This was another setback for an industry already reeling from the pandemic's aftermath. They needed to take action. And this merger demonstrates that they aren't going to take any of it lying down. In reality, both corporations stated after the announcement that this merger was an attempt to "resist the assault of OTT players."

And it's not just about box office receipts.

Consider advertisements: now, Inox offers a 30% discount on commercial slots compared to PVR. That discount is unlikely to last if the merger is completed. Finally, there are individual retail ticket buyers. We already pay a lot when we go to the movies, with the food and beverages being quite expensive. However, it is now possible that it may become much more costly. This is what negotiating power accomplishes.

In conclusion, this combination gives both organizations more excellent breathing room and may even help them prosper in the long run.

But how do you do it? What precisely does this mean for the firms' success? According to one study, it's an "invincible size advantage."

It's known as negotiating power in layman's terms. When you own a significant portion of the market, you may impose terms on your suppliers and customers.

Multiplexes now account for half of all box office earnings. That is a substantial sum.

The only thing keeping them from reaching new heights is competition. They are intensely competing, and they don't have as much power over producers. However, suppose a single organisation (such as PVRINOX) emerges to control a significant portion of the market. In that case, producers will find it difficult to refuse, even if they seek a more significant share.

Source: JM Financial

When someone possesses this type of power, the Indian Competition Commission should step in to investigate the merger.

They'll explore if the union has a detrimental influence on customers, innovation, or industry growth. On the other hand, PVR and Inox did not require CCI's approval. Why? According to their laws, companies do not require express authorisation to merge if their combined revenues do not exceed 1,000 crores

05

| COVER STORY The merged company would have 1,546 functioning screens spread over 341 locations in 109 cities. According to JM Financial, a company of this size would have "significant negotiating leverage over the whole ecosystem, including customers, real estate developers, content creators, technological service providers, the state exchequer, and staff."

Abhay Agarwal, Piper Serica's Founder remarked that multiplex is a problematic industry with high CAPEX and fixed OPEX. Even in a fast-growing market like India, theatres have struggled to create free cash flows. The existing business model is a glorified quick service restaurant (QSR), with more than 80% of earnings from high-priced food and beverages.

Single-screen theatres account for around 70% of the industry and face closure, but theatres, which account for 30% of the market and have over 2,700 screens, are seeing robust growth.

Given the big movie market (over 2,000), solid box office receipts, fewer screens/cinemas, and a concentrated multiplex industry (PVR/Inox control over 40% market share), the multiplex business has plenty of space to grow. The merged firm has the potential to expand the network in Tier II and Tier III markets.

INOX has a smaller non-ticketing income share of 42 per cent compared to PVR's 48 percent. This will allow INOX to benefit from the combined entity's scalability.

However, given INOX's recent large scale, we believe it might have crossed this gap even without the merger. PVR may potentially be able to use its balance sheet to push screen increases after repeated fundraising rounds in recent years.

Source: JM Financial

At best, the movie screening industry is profitable. Local advertisers and certain regular government ads are the only sources of advertising revenue. Footfall is entirely reliant on the quality of new releases, over which the multiplexes have little control. Most crucially, they've been losing ground to overseas OTT behemoths when it comes to fresh content releases. As a result, the merging of PVR and INOX should be viewed as a last-ditch defensive measure to produce cost savings

06

| ECO SECTION

SRI LANKA ECONOMIC CRISIS Sri Lanka is in the midst of one of the worst economic crises it has witnessed in the past seven decades. The country has defaulted on its foreign debt payments for the first time since it gained independence. Its citizens face crippling 12-hour power cuts and an extreme scarcity of fuel, food, and other essential items such as medicines. Inflation is also at an all-time high rate of 17.5%, with rice prices soaring to five hundred Sri Lankan Rupees which usually cost eighty rupees.

Anupreet Lall | MBA - C | 2021-23 Vidyathmika S | MBA - FS | 2021-23 Besides, the remittances from overseas residents also declined sharply. Further, as global primary commodity prices continued to fall since 2013, the country's avenues to earn higher export revenue dwindled Another primary reason behind the current crisis is the government's decision to shift to organic farming

Sri Lanka's economy was in trouble even before the pandemic started. The lockdowns further added to the country's woes and impacted the informal sector, accounting for around 60% of the workforce.

The foreign exchange reserves have fallen by 70% in the past two years to $2.31 billion. The country mobilizes foreign exchange reserves through primary community exports and tourism.

Tourism, one of the vital sources of foreign exchange for Sri Lanka, was adversely affected by the Covid-19 pandemic.

Source: Central Bank

07

| ECO SECTION Sri Lanka spent $260 million on fertilizer subsidies, and the country imported fertilizers from other countries. However, in May 2021, the government declared that the country would switch entirely to organic farming, and it banned the import of fertilizers. The illtimed policy, implemented to preserve foreign exchange reserves, had a brutal impact on the production of agricultural products, thus forcing the country to import more food items Further, Populist policy initiatives like tax cuts wherein personal taxpayers were given a 40% reduction in taxes while the VAT taxpayers enjoyed a 70% reduction. These policy initiatives were popular in the short term but became a disaster once other crises hit.

CURRENT SITUATION The non-availability of fuel to generate hydroelectricity has led to a shortage of seven hundred and fifty megawatts of thermal power.

More than 40% of the country's electricity requirement is met through hydropower, but most reservoirs were running dangerously low because of no rains. The extreme shortage of coal and oil further impacted the electricity supply in the country.

Fuel shortages have led to long queues at petrol stations. Fuel prices in the country have also increased, with petrol prices up by 92% and diesel by 76% In February 2022, retail inflation reached 15.1%, and food inflation hit 25.7%. In March, the Central Bank of Sri Lanka raised interest rates to staunch growing inflationary pressures. It urged the government to curb imports of non-essential items and increase fuel prices to reduce pressure on the economy.

Further, the Central bank has devalued the rupee by up to 15% and has set an exchange limit of 230 Srilankan rupees per dollar.

INDIA'S ROLE India has extended support of $2.5 billion to Sri Lanka, including two lines of credits for purchasing food, medicines, and fuel.

India has already sent several shipments of fuel and wheat provided for under two lines of credit extended by it in January, that total up to $1.5 billion. The Reserve Bank of India has also cleared a currency swap

08

| ECO SECTION

arrangement of $400 million. The government of India has also agreed to a long-pending request to defer Sri Lanka's debt repayment for the first quarter.

examine and reconstitute the constitutional legal and institutional structures to enforce effective budget monitoring, transparency, parliamentary oversight, and accountability

DEAL WITH IMF

State-owned enterprises need to be reformed through divestiture, downsizing, or closure as they are in distress.

The island nation is set to ask for the aid of $4 billion from IMF to pull itself out of this unprecedented economic crisis. The funds will be crucial to the success of the debt restructuring process initiated by the government after suspending payments for some of the outstanding debts.

IMF's involvement will also help Sri Lanka to negotiate with its bondholders. According to Citi Global Markets analysts, the country might ask its investors to take a haircut of 50% on interest payments, and 20% on the principal, with an exit yield of 11%.

WAY AHEAD FOR SRI LANKA The end of Sri Lanka's civil war in 2009 brought hopes of rapid economic growth.

However, these hopes did not materialize as Sri Lanka failed to liberalize its economy. The country's post-war economic growth was primarily driven by government expenditure and large debt-financed infrastructure projects causing the budget deficit to increase significantly while the economy petered off.

Institutionalizing fiscal discipline is key to managing a budget deficit. The country should

There is a need for the government to roll back its tax collection policy to increase the revenue collection. The country needs to launch a simplified and transparent tariff policy and improved trade facilitation to enhance its trade competitiveness and market access; this will help the country achieve a sustainable current account balance.

Sri Lanka's debt situation is overwhelming; the proposed reforms are critical for the country to change for the better. These reforms are tied intrinsically to Sri Lanka's political economy. Successive governments have sidestepped reforms due to their political ideologies and fears of upsetting the status quo, thus creating the explosive crisis that is currently threatening the wellbeing of the citizens.

Even if Sri Lanka does manage to address its immediate debt issues, failure to undertake these reforms will increase the chances of Sri Lanka slipping back to a similar unpleasant state in the future.

09

| SECTOR ANALYSIS

TEXTILE SECTOR INTRODUCTION India is the world’s second-largest producer of textiles and garments. It is also the fifth-largest exporter of textiles spanning apparel and domestic and technical products. The textiles and apparel industry contributes 2.3% to the country’s GDP, 13% to industrial production, and 12% to exports. The textile industry has around 45 million workers employed in the textiles sector, including 3.5 million handloom workers. India’s textile and apparel exports stood at US$ 30.4 billion in FY21.

Exports of textiles (RMG of all fabrics) stood at US$ 8.58 billion between April 2021 and October 2021. COVID-19 has impacted the Indian textile and apparel exports, and the total exports are expected to reach US$ 65 billion by FY26. The Indian textile and apparel industry is expected to grow to US$ 190 billion by FY26.

The Indian apparel market was US$ 40 billion in 2020 and is expected to reach US$ 135 billion by 2025.

Tuneer Sarkar| MBA-DSA| 2021-23 Jonath Simon| MBA- FS| 2021 - 23 The Rs. 10,683 crores (US$ 1.44 billion) PLI scheme is expected to be a significant booster for textile manufacturers. The scheme proposes incentivizing MMF (artificial fibre) apparel, MMF fabrics, and ten segments of technical textiles products.

SECTOR OVERVIEW The size of India’s textile market is expected to touch US$ 223 billion by 2021, growing at a CAGR of 10.23% over 2016. The Indian textiles market is expected to be worth over US$ 209 billion by 2029. The Indian apparel market is expected to reach US$ 85 billion by 2021. India’s textile and apparel exports to the US, its single largest market, were up 55% in 2021 In April 2021, Union Minister Smriti Irani assured strong support from the Textile Ministry to reduce the industry’s

10

| SECTOR ANALYSIS RECENT TRENDS Textile Parks: Since 2014, 59 textile park projects have been sanctioned under SITP and PPP with 40% Government assistance of up to Rs. 40 crore (US$ 6 million). Of these, 24 textile parks are operational as of July 2021.

Source: Statista dependence on imported machine tools by partnering with engineering organizations for machinery production.In September 2021, the government approved the Rs. 10,683 crore (US$ 1.44 billion) production-linked incentive (PLI) scheme for the textiles sector. It will benefit the textile manufacturers registered in India.

GROWTH IN DOMESTIC TEXTILE INDUSTRY India’s domestic textile industry is expected to expand at a CAGR of 8.3% during 2014-21 and reach US$ 8.2 billion in 2021 from US$ 4.7 billion in 2014. India accounts for 7% of the global domestic textiles trade. The growth in domestic textiles is driven by growing household income, increasing population, and developing end-use sectors like housing, hospitality, healthcare, etc. Despite the pandemic, India’s domestic textile exports increased at a healthy rate of 9% in FY21.

Indian textile players have undertaken various initiatives to boost textile sales. In May 2021, Indo Count Industries Ltd. (ICIL) announced an investment of Rs. 200 crores (US$ 26.9 million) to expand its production capacity

Incubation in apparel manufacturing: As of July 2019, three projects were sanctioned by the Government, one each in Madhya Pradesh, Odisha, and Haryana Technical textiles: Increased awareness of goods, higher disposable incomes, changing customer patterns, and some sector-specific growth drivers are estimated to bolster the Indian technical textiles market to US$ 23.3 billion in 2027, up from US$ 14 billion in 2020 in Asia-Pacific.

Focus on high growth domestic markets: The Government of India has increased the essential customs duty to 20% from 10% on 501 textile products to boost Make in India and indigenous production Focus on backward and forward integration: In August 2019, the Ministry of Textiles signed MoUs with 16 state governments to impart skill training and covering the entire value chain of the textiles sector except spinning and weaving.

11

| SECTOR ANALYSIS

DRIVERS OF GROWTH RISING INCOME AND GROWING MIDDLE CLASS Rising income has been a critical determinant of domestic demand for the industry, with income rising in the rural economy. The upward push on-demand from rising income is set to continue. The rising industrial activity would support the growth in per capita income INCREASING GLOBAL DEMAND: India is the world’s second-largest textile exporter. Capacity built over the years has led to a low cost of production per unit in India’s textile industry. This has lent a substantial competitive advantage to the country’s textile exporters over key global peers.

ADVANTAGES Competitive Advantage: Abundant availability of raw materials such as cotton, wool, silk, and jute.

In March 2021, the Minister of Textiles Smriti Irani announced that India would be fully self-reliant in silk production in the next two years Policy Support: 100% FDI (automatic route) is allowed in the Indian textile sector.

Under Union Budget 2020-21, a National Technical Textiles Mission is proposed from 2020-21 to 2023-24 at an estimated outlay of Rs. 1,480 crore (US$ 211.76 million).

In October 2021, the government approved a scheme worth Rs. 4,445 crore (US$ 594.26 million) to establish seven integrated mega textile parks and boost textile manufacturing in the country.

Robust Demand: The Indian technical textiles market is expected to expand to US$ 23.3 billion by 2027, driven by increased awareness of goods and higher disposable incomes.

Exports of cotton yarns/fabs./madeups/handloom products stood at US$ 8.6 billion between April 2021 and October 2021.

Increasing Investment: To attract private equity (PE) and employ more people, the Government introduced various schemes such as Scheme for Integrated Textile Parks (SITP), the Technology Upgradation Fund Scheme (TUFS), and Mega Integrated Textile Region and Apparel (MITRA) Park scheme.

12

| SECTOR ANALYSIS

The government announced setting up Mega Integrated Textile Region and Apparel (PM MITRA) in the union budget for 2021-22.

At least nine states have submitted proposals for setting up such Textile parks.

The states that have raised the proposals include Tamil Nadu, Punjab, Odisha, Andhra Pradesh, Gujarat, Rajasthan, Assam, Madhya Pradesh, and Telangana The Centre has planned to invest around Rs 4,445 crore by 2027-28 to develop these parks with world-class infrastructure, including a plug-and-play facility for investors in the sector.

The Government has promoted growth in this sector by establishing eight Centers of Excellence (CoEs) for research and innovation in technical textiles.

KEY PLAYER The Second largest Textile Company in India, Vardhaman Textiles, is one of the key players in the Textile industry. It was established in 1965 and now has become one of the leading textile conglomerates in the country.

INVESTMENT OPPORTUNITIES

Revenue

₹ 6,706 Cr

Debt

₹ 1,975 Cr

Dividend Yield

1.67 %

ROCE

10.90 %

ROE

10.46 %

Stock P/E

₹ 7.50

Processing Capacity

140 mmpa

Employees

22,939

Exports of unfinished commodities, such as raw fiber, yarn, and greige textiles, resulting in a significant loss of value addition opportunities.

In today's scenario, the Indian textile sector has an excellent opportunity to benefit from both global and domestic prospects by taking advantage of the country's favorable economic environment. The parties' joint efforts appear to be yielding positive outcomes.

Sources: India Brand and Equity Foundation, investindia.gov.in

Manufacturing capacity continues to decline as we move downstream in the value chain, resulting in a loss of value addition opportunities.

13

| COMPANY ANALYSIS

WELSPUN INDIA LTD. COMPANY'S OVERVIEW Welspun India Limited is one of the world's largest home textile manufacturers, with a market capitalization of US$ 2.7 billion. The company provides a wide range of home and technical textile products, as well as flooring solutions. Over the years, the company has established itself as a leading player in the home textile sector, and it continues to focus on the enablers of innovation, branding, and sustainability in order to maintain its position of leadership It produces a comprehensive range of home textiles, including towels, bathrobes, sheets, and fashionable bedding. It has recently expanded into the carpet and flooring solutions market Its distribution network stretches over more than 50 countries, making it India's largest supplier of home textiles.

Exports to the United States and Europe account for over 84 percent of revenue

Tanisha Chaudhary | MBA - C | 2021-23 Kartik Anand | MBA - D | 2021-23 The United States contributes for roughly 67 percent of the company's sales, with the European Union (17 percent), India (7 percent), and rest of the World (9 percent).

It has significant market share, accounting for 19% of the towel market and 11% of the sheet market in the United States.

COMPANY HISTORY Welspun Polyester India Limited began as a modest textile mill unit in Palghar in 1985 and evolved to become Welspun India Limited in just six years. With the addition of a towel factory in Gujarat, the company grew exponentially Welspun U.S.A. was established as an entirely- subsidiary of Welspun Global Brands Limited in the year 2000. Welspun concentrated on knowing its U.S. consumers better, with sales, design, and marketing located in New York City and a distribution hub in Ohio. Welspun U.S.A. was also formed in Ohio, a city that emerged as a conventional distribution network

14

| COMPANY ANALYSIS

governance system is built on a diversified Board of Directors and Board Committees, as well as a separation of the Board's supervisory role from that of the executive management team.

Source: Screener.in

Welspun City, Anjar, Kutch, was established in 2004. It encompasses 2,500 acres and is home to Asia's largest home textile industry as well as one of the world's largest diameters S.A.W. pipe mills As of 30th September 2021, the following was the shareholding pattern of the company –

Source: Annual Report

At Welspun Enterprises, the roles of the Chairman and the Managing Director are separated as a good governance practice.

The Board and Board Committee specify their roles through a charter.

The promoters of the company hold approximately 70.36% of the shares. The most notable promoter is Balkrishna Gopiram Goenka (Welspun Group Master Trust), who holds approximately 69.46% shares.

The Company has a well-established threestage line of defense concept that guides the organization's efficient operations. At Welspun Enterprises, all three lines of defense work together with the same goal in mind: to help the company achieve its goals and manage risk effectively

The Domestic Institutional Investors (DII) include the following –

BUSINESS ASSOCIATES AND SUBSIDIARIES

Life Insurance Corporation of India (L.I.C.) – 2.04%, D.S.P. Small Cap Fund – 1.69%, L&T Mutual Fund Trustee Limited-L&T Emerging Businesses Fund – 1.12%.

MANAGEMENT TEAM Throughout the years, the management staff has proven to be competent. The company's

Welspun India is itself the largest company in the Welspun group of companies, with others being, Welspun Corp, Welspun Retail, Welspun Energy, Welspun Steel, Welspun Syntex. Welspun India has its own subsidiaries namely Anjar Integrated Textile parks Pvt. Ltd, and Welspun AG. Welspun AG is a Supply Chain Integration subsidiary that procures and supplies raw materials for Welspun India.

15

| COMPANY ANALYSIS

FINANCIAL ANALYSIS The company saw a growth of 12.56% in total revenue which shows robust demand in the post-Covid period. The higher sales figure is a harbinger of pent-up demand over the upcoming year.

The ROCE at 13.8% shows continuous improvement in the past four years. The 36.4% improvement in the D/E ratio shows the company’s persistent efforts to reduce debt. It reduced debt to the tune of ₹659.6 Crores since 2019.

standards and practices in this direction and the efforts made are evident in the smooth transitioning of the organization and its employees to quickly adapt and execute the new processes along with Economic, Social, and Governance aspects ENVIRONMENT

On the Environmental front, the company has made strategic moves with a view to make its energy sources cleaner and greener and reduce GHG emissions. Welspun has made sustained efforts to restore ecological balance Welspun posted a net operating profit of Rs across air, water, and land ecosystems with 1352 crores for FY 21, a rise of 27% over pre- more than regulatory compliance setting covid levels. Also, the EPS rose from Rs 2.1 on standards as a textile giant March,19 to Rs 5.4 on March 21, a rise of 157%, a pleasant sign for investors.

The improvement in FCF has indicated value creation for its shareholders. The Company has upheld investor confidence through continuous dividend payout and buyback. The company has focussed on strategic areas of investment like strengthening of brands, Source: Screener.in proliferating trade channels, and exploring AIR new geographies Welspun is focused on mitigating air pollution with a plan to reduce its carbon footprint. The company has replaced virgin raw materials With the market and consumers taking active with recycled ones, used cleaner fuels and note of every company’s sensitivity towards also started monitoring Scope 1 and Scope 2 nature and the society, Welspun too has emissions and reports it publicly. streamlined its broader efforts towards sustainability into the more focused ESG Additionally, it has set a target of carbon approach. The company has made a neutrality by 2030. commitment to align with the global

ESG ANALYSIS:

16

| COMPANY ANALYSIS For this, it has sought Green Energy supplies and EVs for transportation and outbound Logistics.

WATER With Climate change becoming a reality and water becoming a precious but scarce natural resource, Welspun has adopted an efficient water management system to tackle water consumption. It has set up a 30 MLD sewage treatment plant and also recycles public water to the tune of 7000 billion liters annually to meet its water needs. Also, at the Anjar plant a rainwater harvesting project has helped improve biodiversity and satisfy community needs LAND The Company has switched from conventional to sustainable raw materials with increased sourcing from BCI programs. It aims to reach 100% organic sourcing by 2030.

Also, with good agricultural practices, the company has improved soil fertility and productivity by training 14,000 farmers to use organic fertilizers. It has also planted 3,00,000 saplings and recycled waste fabric to reduce pollution.

Across Education, Health, and Women Empowerment, the company has taken steps to digitize government classrooms, establish schools, and train teachers to improve the quality of education. It has also supported women in sports and in household industries. Wel Shakti is one of the principal initiatives by the company to increase awareness about education.

GOVERNANCE The Company has brought in Transparency and Accountability, Materiality Assessment, Supplier Sustainability, Traceability in its Governance scheme.

With increased shareholder activism it has a committed leadership team with multiple boards and individuals elected from diverse backgrounds to steer the ship. It also has 29% women on board to cover the diversity aspect. Efficient control and decision making is key to its policies and has many systems and technology in place for the same.

Source: Welspun Investor Presentation .

SOCIAL With its high-impact CSV initiatives, the company aims to transform lives and take up social responsibility as an integral part of its work.

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| INTRIGUING INDEED

PETRODOLLARS LITIGATION FINANCING WHAT ARE PETRODOLLARS? Petrodollars are U.S. dollars paid to oilexporting countries in exchange for oil. The dollar serves as the world's reserve currency.

Consequently, the majority of the global transactions, including oil, are priced in U.S. dollars. Unlike their currencies, oil-exporting nations get paid in dollars Additionally, most of the nations exporting oil own their oil industries. They are, therefore, dependent on the value of the dollar for their national income. Their government's revenue will fall if the dollar value falls. Consequently, most oil-exporting nations also peg their currencies to the dollar. This means that all of their domestic goods and services will drop in price if the dollar's value falls. These countries can somewhat protect themselves from extreme inflations or deflations

Moumita Biswas | MBA-A | 2021-2023 Priyanka Acharekar | MBA-A | 2021-2023 Many members of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil and gas exporters such as Russia, Qatar, and Norway rely on petrodollars as their primary revenue and wealth The petrodollar isn't a currency, and it isn't a global trade system either. The widespread usage of the U.S. dollar as a means of payment for crude oil transactions reflects non-US oil suppliers' longstanding preferences.

THE PETRODOLLAR SYSTEM Petrodollars are rooted in the history of the gold standard. Most of the gold in the world was held by the United States after World War II. The U.S. agreed to redeem any

In a couple of years leading up to the COVID19 pandemic, global crude oil exports averaged around 70 million barrels per day. At such a rate, petrodollars' worldwide supply would be more than $2.5 trillion per year, taking the average price of $100 per barrel

dollar's value in gold if other countries pegged their currencies to it. At the 1944 Bretton Woods conference, other nations agreed to this arrangement and the U.S. dollar became the world's reserve currency

18

| INTRIGUING INDEED

During Franklin D. Roosevelt's presidency, the alliance with Saudi Arabia took place on February 14, 1945. Abd al-Aziz, the Saudi king, met with him. A US airfield was built at Dhahran in exchange for military and business training there. Because of the vitality

of

this

alliance,

it

withstood

disagreements over the Arab-Israeli conflict in subsequent years.

The U.S. dollar was run in 1971 due to stagflation. Many countries demanded gold in exchange for U.S. dollars. The dollar was removed

from

the

gold

standard

the remaining gold reserves of the United States. A result of this was a steep decline in the dollar's value. It also led to a drop in the export value of the U.S., making them more competitive. declining

dollar

hurt

oil-exporting

countries because contracts were priced in dollars.

The

dollar's

fall

impacted

oil

revenues. Imports renominated in different currencies cost more.

In 1973, Nixon requested military aid for Israel during the Yom Kippur War from Congress. Oil exports to the United States and other Israeli allies had been halted by the

newly

established

Organization

of

Petroleum Exporting Countries. Oil prices quadrupled within six months due to the OPEC oil embargo. Even when the ban expired, prices stayed high.

The Joint Commission on Economic Cooperation between Saudi Arabia and the United States was established in 1979. For contracts of oil, they resolved to use the U.S. dollar. Contracts with American companies would reprocess the funds back to the United States. Through the transfer of technology, these companies help to strengthen Saudi's infrastructure. This stimulates the local economy by increasing imports and providing better compensation for government employees.

by

President Richard Nixon in order to protect

The

PETRODOLLAR RECYCLING

The remainder is used to help the country improve its finances. Their petrodollars are recycled through sovereign wealth funds.

They invest this cash in non-oil-related ventures. These enterprises' profitability allows them to be less reliant on oil prices.

The five largest petrodollar recyclers in the world, based on asset rankings, are as follows: Norway Government Global - $1.187 trillion

Pension

Fund

U.A.E. Abu Dhabi Investment Authority $697 billion Kuwait Investment Authority - $534 billion Saudi Arabia SAMA - $494 billion Qatar Investment billion

Authority

-

$328

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| INTRIGUING INDEED BENEFITS OF PETRO CURRENCY Simply put, the petrodollar system gives the U.S. dollar an elevated currency status in the world economy. And thus, it only mainly benefits the United States to maintain consistent trade deficits and also acts as a source of liquidity. It allows an inflow of foreign capital through petrodollar recycling and financing trade deficits with low-interest rate assets. Most importantly, it enables the United States to have a more substantial, decisive influence over the global economy, which runs on fuel DRAWBACKS OF PETRO CURRENCY The same powerful status for the mighty U.S. dollar also results in a Catch-22 situation endangering its position. Since the U.S. needs to keep running the account deficits to maintain liquidity in the global markets, stopping these deficits will slow down the entire global economy. In contrast, in continuing the deficits, there is the risk that other countries may downgrade the Dollars' value HOW PETRODOLLARS DOLLAR

AFFECT

THE

U.S.

Post the collapse of The Bretton Woods System in 1971, only the dollar could realistically provide that kind of security.

This was because of an increased global supply of the U.S. Dollar owing to the growing U.S. trade and budget deficits.

Oil exporters had no choice but to accept the dollar as it was the currency of their leading customer. Moreover, the wide use of the U.S. Dollar across the globe made it an advantageous currency for them to stash

The global dominance achieved by the U.S. Dollar by inducing demand for dollardenominated investments outside the States was always a double-edged sword as issuing such liabilities in large volumes over the years is likely to dent their own creditworthiness and erode confidence in the currency. This conundrum is now known as the Triffin Dilemma. In practice, the advantages accrue immediately, while the drawbacks manifest at a glacial pace with unpredictability. For example, up until 1968, almost a century post the U.S. took over as the largest global economy, the British pound still accounted for 30% of international foreign exchange reserves.

As of 2020, the U.S. economy accounted for about a quarter of the global GDP and also has by far the world's largest current account deficit, but that's seemingly unavoidable for an issuer of a reserve currency However, in retrospect, the economies continue to adjust to accommodate the system. In recent years, we saw the U.S. become a net oil exporter, thus reducing the flow of "petrodollars" to favor plain old dollars, benefitting oil-producing states like Texas.

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| INTRIGUING INDEED The recycling process, which was accelerated amidst supply chain disruptions due to the COVID-19 pandemic, could potentially slow or even further reverse the growth of the U.S. trade deficit THREAT TO THE PETRODOLLAR SYSTEM In the background of the Russia-Ukraine, we heard the news that Saudi Arabia was considering trading oil for yuan with China.

Drawing a parallel from the past, when the U.S. was the biggest customer for oil exporters, today China is the world's largest oil consumer, so it seems like direct logic to trade in yuan in place of the dollar The consistent demand for dollars, as discussed earlier, is the reason it maintains a reserve status. But if the most prominent players decide to break away and use another currency, then the system shall fall apart. Wars have been incited to keep the system intact or to dissuade any member from estrangement.

However, the talks about oil trade in yuan are not new; the entire oil-producing region and its leaders are used to getting subsidies and payments in dollars, which allows their spending overseas. The question arises whether the yuan will be viewed as a "safe currency" to do all of the above?

China has its own challenges in maintaining stability in its yuan, and transparency remains a whole other issue. If Saudi Arabia were to materialize this, it would mark a significant step toward the decline of the dollar. But regardless, we see, the wheels of change are already set in motion. Covid and Ukraine have just brought that timeline closer to the dollar's ultimate demise.

Source: The Balance, Investopedia, Tony Robbins

Now, Russian banks have also been sanctioned out of the SWIFT system, making it very hard for them to trade dollars in exchange for their commodities.

But if Russia produces a certain amount of oil fitting China's needs, there should seemingly not be a need for any dollars. This ongoing war has shown China just that. They have been developing their own version of the SWIFT called CHIPS system, but the notional value of transactions is quite minimal compared to the SWIFT.

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| ENTREPRENEURSHIP INNOVATION

GO DUTCH INTRODUCTION Matrix Partners recently invested $1.7 million in GoDutch, an Indian payments platform. Y Combinator, Global Founders Capital, Soma Capital, VentureSouq, and notable angel investors such as Justin Mateen (Co-founder, Tinder), Kevin Lin (Co-founder, Twitch), and Rohan Angrish (Head, ICICI Labs), and Sumon Sadhu all contributed to the seed round Aniruddh Singh, Riyaz Khan, and Sagar Sheth, IIT Bombay grads, created the company in 2019 to target India's millennial demographic, which spends with their peers The startup streamlines group payments by allowing customers to automatically record, share, and settle transactions As young millennials, a significant part of our lives is spent with different groups such as flatmates, office colleagues, and friends we go out with.We’ve built goDutch so that you can genuinely enjoy your group

Anshul Sharma | MBA-C | 2021-2023 experiences and create amazing memories without stressing over how to manage the group expenses,” said Sagar Sheth, Co-founder, and CEO, goDutch.

The startup's goal is to eliminate the awkward moment at the conclusion of an outing when figuring out who pays and how we pay them back. "Embarrassing issues in settling bills with our buddies have an impact on our group's experiences." "With one swipe of the goDutch card, we handle this complex social problem and provide our clients with a quick and painless experience in these difficult situations," stated Aniruddh Singh, Co-founder, and COO. GoDutch is the Indian version of Splitwise, with the added benefit of allowing you to share spending with friends in real-time using a CBS Bankcard. You can buy stuff with the card, and group members pay their portion in real-time.

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| ENTREPRENEURSHIP INNOVATION ABOUT THE FOUNDERS Aniruddh is one of the co-founders of goDutch. He has worked at Axis Bank as a Manager, Business-Technology Relationship Group, Curtin University as a Research Associate, and Schlumberger as a Summer Intern. He graduated from the Indian Institute of Technology with a Bachelor of Engineering (Civil) degree from Bombay.

Riyaz is one of the co-founders of goDutch.

He has worked for InstaReM as an Associate Product Manager and Diamond Technology Solutions as an Application Developer. He graduated from the Indian Institute of Technology, Bombay, with a Bachelor of Engineering (Civil) degree.

Sagar is one of the co-founders of goDutch.

He has worked at Eight Roads as an Investment Professional, A.T. Kearney as a Business Analyst, Tano Capital as a Private Equity Intern, and Credit Suisse as a Summer Analyst. He graduated from the Indian Institute of Technology in Bombay with a bachelor's degree in engineering.

BUSINESS MODEL The start-up, founded by IIT Bombay grads Aniruddh Singh, Riyaz Khan, and Sagar Sheth, aims to reach 50 million Indians in tier 1 and 2 cities, with $75 billion in annual group transactions, according to the business.

Group payments are currently a multi-step process with a high social barrier for most users

Most young adults who use current transaction tracking applications have difficulty settling their accounts, and receivables frequently increase quickly. goDutch aims to close this gap by streamlining and automating the process.

People are currently using typical payment apps for one-to-one or group payments.

Given how frequently people discuss purchases with their friends, it was time to look at this issue. As a result, GoDutch introduced the goDutch card, allowing pals to share funds in real-time.

The goDutch card, which is issued in collaboration with CSB Bank, allows for real-time group payment splitting at online and offline merchants. While users may acquire a free virtual card by signing up for the app, customers can also order actual cards through it.

While several apps allow recording group transactions, none of them allow for seamless peer-to-peer settlements or realtime splitting. It is a real issue for young adults, and if it's addressed. effectively, the product has the potential to go viral.

GoDutch founders felt that group payments could be an attractive entry point for bringing group commerce online in the future.

ROAD AHEAD Currently, GoDutch’s revenue is less than $1 million, which has a lot of potential for

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| ENTREPRENEURSHIP INNOVATION revenue growth as a percentage of total market size but the competition in this niche is not negligible, with Fin-Tech behemoths like PhonePe and new startups like Mypoolin and Splitwise also vying for a piece of this enormous pie. The group CEO Sagar Sheth enjoys considerable goodwill amongst the employees, which will benefit the organization in the long term.

The group transactions market in India’s Tier 1 and 2 cities are worth $75 Billion, with over 50 million customers. GoDutch will be targeting these sets of customers in the coming years.

Sagar Seth, one of the startup's founders, also disclosed that they would be working on issuing physical cards to users in the near future. He also stated that the funds raised would expand the team and improve the platform's development.

Source: Business Standard, Yourstory

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| PERSON IN FOCUS

KUNAL SHAH Muskan Jain | MBA – FS | 2021-2023 Kunal Shah is a successful Indian entrepreneur with a net worth of $806 million as of 2021. He is the founder and CEO of CRED, a credit card solution provider that was formed in 2018 with a unique approach.

PaiseBack, a platform for cashback and promotional discount campaigns for retailers, is one of his earlier efforts. He founded PaiseBack in 2009 and Free Charge in 2010 PERSONAL LIFE Kunal was born in Mumbai, Maharashtra, on May 20, 1983. Kunal Shah was born and raised in Mumbai.

Kunal comes from a poor background, and his family ran their own pharmaceutical distribution business in South Bombay.

There isn't a lot of information on his family and relatives.

Kunal Shah graduated from Wilson College in Mumbai with a Bachelor of Arts degree before dropping out of the Narsee Institute of Management Studies.

Shah

began

working

as

a

junior

programmer in a business called "TIS International Inc" in 2000, when he was a victim of the Financial Crisis.

PROFESSIONAL LIFE Paiseback, a company that offers cashback promotions to organized stores, was Kunal Shah's first business venture. He also tried to form good relationships with localised centres of companies like McDonald's, Barista Coffee, Domino's, and Croma in order to offer cashback offers to customers who were referred by Paise, but he failed miserably and was thwarted by online players like Coupon Duniya, smartphone, and others.

From 2000 through 2010, he served as the CEO of several companies. He founded his own company, FreeCharge, in August 2010. In January 2016, he worked for "Y Combinator," an American seed capital firm.

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| PERSON IN FOCUS He also served as Chairman of the Internet and Mobile Association of India. At Sequoia Capital, he also undertook some consultancy work.

Kunal has always been fascinated by human behaviour, finance, and science. Free Charge, created by Kunal was purchased by Axis Bank for $60 million in 2017.

Kunal invested all of the money he made from the sale of his company in start-ups both in India and abroad. Pianta (a healthcare service start-up), Unacademy (an ed-tech start-up), and Razorpay ( billiondollar fintech start-up) are among the 80 start-ups he has invested in. He was once asked in an interview, "Why doesn't he have any fancy cars?" to which he replied that he only wants to invest in other people's aspirations as well as new start-ups.

Source: Google images

Fortune 40 Under 40– Kunal was listed among the top Business entrepreneurs

by Fortune (2016) and also by Fortune Magazine (2015).

FOUNDATION OF CRED (2ND FASTEST GROWING UNICORN START-UP IN INDIA) Kunal Shah started CRED in 2018 with the goal of reaching the top 1% of the Indian population with a lot of money to spend

Kunal overcame several obstacles on his way to becoming an entrepreneur, but he refused to give up. He demonstrated that you don't need an MBA to be an entrepreneur or to start a business; all you need is a lot of guts and faith in yourself.

Kunal Shah established CRED as an incentive-based reward system for its clients to pay their credit card bills with rewards such as discounts on plane tickets and gym memberships, but customers must have a credit score of 750 or above to qualify.

AWARDS AND ACHIEVEMENTS

CRED has 5.9 million active users and handles about 20% of credit card bill payments in India

Comeback award– Kunal was rewarded with Comeback Award by Economic Times in the year 2016.

Economic Times 40 Under 40–Kunal Shah was one of the business leaders in the Economic Times 40 under 40 issued

by Times of India (2016).

He has also appeared as a judge in the web series "TVF Pitchers" as part of a start-up competition and is quite active on social media, with around 269k followers on Twitter, where he expresses his thoughts and opinions.

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| CALL FOR ARTICLE: WINNER

BFSI SECTOR: POST THE HDFC BANK MERGER Abhay Wanchoo |SIMSREE, Mumbai| MBA Batch 2021-23 “As the son grows older, he acquires the father’s business.”

This was an actual quote from Deepak Parekh, the chairman of HDFC Ltd, explaining the merger between the 45year-old HDFC Ltd and its 28-year-old banking offspring HDFC Bank.

HDFC Ltd was set up with the primary aim to change the way people in India approach the real estate market. Earlier borrowing money to build your own home was a foreign concept and not prevalent in India as much as it is now and this is where HDFC wanted to make an impact. In a few years, they did succeed and there was a time when HDFC was synonymous with home loans. Later on, post the LPG reforms, they applied for the banking license and brought Aditya Puri onboard, fast forward a bit and they became the 2nd largest bank in India, right behind SBI.

Come 2022, HDFC bank will now merge withits parent company, HDFC Ltd. As per the transaction structure, HDFC Limited, India’s largest housing finance company with Assets Under Management (AUM) worth Rs 5.26 tn and a market capitalization of Rs 4.44 tn will merge with HDFC Bank, India’s largest private sector bank by assets with a market capitalization of Rs 8.35 tn.

Shareholders of HDFC Limited will receive 42 shares of HDFC Bank for 25 shares of HDFC Limited. Its market share will jump from 11% to 15% and it will also make it 2x the size of its main competitor, the ICICI bank. The transaction is expected to close over the next 18 months, subject to the completion of regulatory approvals and other customary closing conditions.

Post the ILFS crisis, NBFCs had to deal with similar regulations as that of regular commercial banks, thanks to RBI, and as a result, their Cinderella story came to a halt.

It would hardly make sense to run a NBFC

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CALL FOR ARTICLE: WINNER which has to follow similar regulations and a bank simultaneously. Infact this merger would be beneficial since HDFC bank has better access to resources thanks to our savings accounts for which they pay very little interest. The additional regulatory cost arising from the Statutory liquidity ratio, cash reserve ratio, and priority sector lending needs due to the conversion of HDFC Ltd into HDFC bank can easily be offset with potential access to low-cost resources and wider penetration, so, win-win.

Just to remind, our erstwhile Chief Economic Adviser Arvind Subramanian made a case for consolidation in the banking space saying the country ideally should have 5-7 large lenders, but up till now SBI is the only bank that has figured in the top 100 banks, however, hopefully, HDFC would be the 2nd bank to make it to the list. RBI had also proposed something on similar lines, suggesting merging NBFCs with banks, although such a proposal did not see the light of the day officially.

However, the challenges of Corporate held banks and specifically issues related to connected lending would still persist.

Whether this move would be the new Eurekathe moment for the Indian banking industry or would lead to a mad rat race for the acquisition of smaller NBFCs remains to be seen. One thing is sure, customers could benefit from this development as at the end of the day, it is about which entity would be able to provide betting borrowing options to its customer base.

Source: Fitch Ratings, Indian Express

Besides this, according to Fitch Ratings, the proposed merger of the HDFC entities and the recently announced acquisition of Citibank India’s consumer business by Axis Bank Limited could encourage banks to turn to M&A. Large NBFCs could be acquisition targets, given their higher-margin products, large pools of priority-sector customers and loans, and potential cross-selling opportunities.

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ISSUE NO. 111, MAY 2022

About Finstreet Finstreet, the finance committee of K J Somaiya Institute of Management aims at bridging the gap between industry and academic curriculum through effective delivery of knowledge-oriented sessions and events through a network of highly motivated members and renowned industry experts. Through the FINLY magazine, we focus on covering crucial topics for each month and giving our members a platform to express their views.

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