The IBS Times; 187th Issue; December 2015

ARE OUR CLINICAL TESTERS REALLY WORTH A SHOT? BY ROHIT TILLU

The IBS times December 2015, Issue No. 187

COVER STORY

DRIVING THE ELECTRIC CAR TREND IN CHINA

BY EYAMINI N.

LOVE IN TOKYO ENDURES

BULLET PROOF INDIA

BY ANUPAMA KUMARSWAMI

PFIZER AND ALLERGAN MERGER

$160 BILLION DEAL

BY SWARUPA ROY

GOODS AND SERVICES TAX

ONE HUNDERED AND TWENTY SECOND AMENDEMENT BILL, 2014

BY RANU SARUPRIA 1|DECEMBER2015

FinStreet, IBS Hyderabad

ISSUE NO. 187, DECEMBER 2015

What’s Inside

2|DECEMBER2015

INTELLIGENCE BEYOND SUCCESS

LETTER FROM THE EDITOR TEAM IBS TIMES KAUSHIK CHANDELL (EDITOR-IN-CHIEF) AVIK CHAKRABARTY (MANAGING EDITOR) ALISHA SINGH

Dear Readers, Greetings from Team FinStreet.

We wish you the Very Best for the New Year. Thank you everyone who has contributed and made us where we stand today. We look forward to continue our work of making available of all the latest happenings round the globe with all your gracious support in the year 2016.

APOORVA ANUSHA

KOLISETTY AISHWARYA MANJARI SHARMA NAVJOTH SAHU PRIYANKA MALIK RAHUL MISHRA RIPU TANDON SACHI KHESKANI SAMEENA USMAN SRISHTI KARMAKAR ABHINAV BANERJEE ANUPAMA KUMARSWAMI CHESTHA KUMAR EYAMINI N HEMLATA HAJONG

Team FinStreet is proud to present the 187th edition of The IBS Times.

We’ve observed that Indian Elephant in the recent past has managed a neck to neck competition with Chinese Dragon and so we serve you with three different write-ups about China, going by the name of KHULLJA SIM SIM, DRIVING THE ELECTRIC TREND IN CHINA & OUTPACING CHINA. Make sure you go through all of them and keep yourself updated with Chinese economy in comparison with Indian Economy. We’ve covered the $160 billion deal between Pfizer and Allergan which is the largest pharmaceutical merger till date. Also, from the learning perspective we bring to you about the 7th Pay Commission, Dr. Lal PathLabs IPO and the One Hundred and Twenty Second Amendment Bill (GST), 2014. For Sector research we’ve published a report on Indian Hotel Industry and the Market Watch, A Make or Break? will help you understand the movement of market for your future reference. From the investment point of view, this issue also brings to you an exhaustive report on Jagaran Prakashan by Team Vriddhi Research.

Do make the most out of it and keep enjoying the experience of The IBS TIMES. Your feedbacks and opinions will help us make it better.

Once again, a very happy and prosperous new year to all our readers.

Kaushik Chandell Team FinStreet

ISHAN GUPTA JATIN SHARMA JHARNA SONI PRATEEK PANDEY RANU SARUPRIA RAVI RANJAN PANDIT ROHIT TILLU SAKSHI ISSAR SANDHYA ADHAVAN SUPRIYA GAUR SWARUPA ROY 3|DECEMBER2015

-THEODORE ROOSEVELT

CHINESE DRAGON IN INDIAN MARKET

KHULLJA SIM SIM

-Abhinav Banerjee

The image of a Chinese Dragon respiring fire is

India continues to tempt big business houses around

catching the global imagination, while the Indian

the world. A large and burgeoning English-speaking

elephant trundles along at a slow pace. China and India

middle class and democratic political climate make

have lot in common but are also vastly different. The

it an ideal place to do business. Alibaba, China's e-

growth trajectory of China has surprised many

commerce giant, the subsidiary of the Jack Ma-led

observers. Lately, Chinese online ventures like Alibaba

company, is planning to more than double the

have parachuted into the e-commerce space and made

number of Indian SMEs (small and medium

pots of money for investors. Can India, which has

enterprises) on its podium by next month. It plans to

always been a step or two behind China, replicate this

take the total number of Indian sellers on board to 10

online success? The answer is not a simple yes or no.

million from 4.5 million at present. In contrast,

By comparison, today’s Indian ecommerce endeavors

home-grown B2C ecommerce company Snapdeal, in

have a fierce competition and have to work in a

which Alibaba has a stake, has around 0.25 million

surrounding which is almost do or die. The latest breed

sellers.

of Indian online shop was created off the block quite

Alibaba launched an online platform SMILE (small

late, Flipkart in 2007 and Snapdeal in 2010. The

and medium industries leveraging export) in

pressure to perform was huge and it forced Indian

association with partners such as ICICI Bank, Kotak

players to offer unrealistic discounts which could result

Mahindra Bank, Crisil Rating, Tally, Capital Float,

in a disaster in future.

Jeena, SGS and Mypacco to encourage Indian SMEs

The loss of more than $20 million by Snapdeal during

to come on board. Alibaba, along with these allies,

the current fiscal year looks ominous. But initial losses

will provide a complete support system, which will

alone do not reflect on the future of any online entity.

include finance and training, to small businesses that

Amazon continues to bleed and still remains a favorite

are looking to scale up. The sellers will be able to

among the bourses. This means we probably have to

trade over the globe on the Alibaba platform.

look at ecommerce platforms differently from brick and

"This is Alibaba's way of digging in heels in the

mortar companies because valuations are usually not

Indian e-commerce industry. They will first cement

realistic.

a supply chain and explore it in detail. Then, they

Market size is also important The Indian part of the

will bring in their business-to-customer (B2C)

ecommerce story revolves around three main heroes –

business here after the discounting game is over. Ma

Flipkart, Snapdeal and Amazon. So you can imagine the

knows that funding others is not the way to enjoy the

kind of ferocious competition that exists between them.

potential of this market," said a top executive of one of the India's largest e-commerce companies.

4|DECEMBER2015

of the India's largest e-commerce companies.

the ecosystem. He said the company was not looking

Alibaba.com Global Business Development Timothy Leung said in a press conference in New Delhi “India is a very important market for us. It is the 2nd largest for us after China. SMEs are an important contributor to any economy and the same is the case with India. In the next few years, we hope to have 10 million businesses

at immediate returns with the SMILE program.

Instead, it will focus on strengthening its ecosystem.

On B2C side, Alibaba has invested $680 million to acquire 40% stake in Indian mobile payment startup Paytm. It has also picked up a close to 5% stake in India’s

second-largest

e-commerce

platform

Snapdeal. Chinese products are set to enter Indian

from India on our platform,"

shores on a big scale. After China’s DHgate and

The SMILE program hopes to simplify and make easier

India’s Shopclues’ integration, Alibaba will also

cross-border trading, helping more than 100 million

enable entry of Chinese sellers in Indian ecommerce

SME’s in India and help them explore global trading

world. Come August, one lakh Chinese sellers from

opportunities in a much economic way. Leung also

AliExpress (Alibaba’s online shopping portal) will

coated that it was Alibaba’s way of extending support

get listed on Paytm. Paytm’s gross merchandise

to Indian Prime Minister Narendra Modi’s ‘Make in

value (GMV) is expected to be $1.5 billion more in

India’ and ‘Digital India’ initiatives. The Chinese

6 months after the deal with AliExpress materializes.

ecommerce firm has also paired up with Mumbai-based

Vice President-payments of Paytm said, “We are

Allcargo Logistics’ international subsidiary ECU Line

undergoing quite a complex integration with

to transport ‘less-than-container load’ (LCL) shipments

AliExpress, something we haven’t done in the past.”

to India. Delivery timeline is one the key element that

He added, “According to our initial estimates, we’ll

company’s

be able to double our gross merchandise within 6

determines

an

online

shopping

performance. The alliance with Alcargo will ensure

months with the help of AliExpress association.”

Alibaba’s consignments reach its Indian customers quickly.

Biswanath

Bhattacharya,

partner

at

KPMG said, “As ecommerce has boomed, supply chains are getting stretched and hence companies compete on timelines. With LCL, frequencies would increase and that would mean better timelines for customers.”

Invasion of Chinese sellers will definitely shake-up Indian ecommerce scene. Known to make handy products at cheap rates, the neighbor merchants might

make

the

existing

similar to the Chinese market. In China, the company’s B2B platform brought suppliers and buyers together, and then expanded its business to different aspects of the ecosystem. He said the company was not looking at 5|DECEMBER2015

online

competition even more brutal. Ultimately the customers will decide, whether they bend towards Made in India or Made in China.

Leung also stated that the Indian B2B market was pretty

cut-throat

COVER STORY

DRIVING THE ELECTRIC CAR TREND IN CHINA

-Eyamini N.

China is forecast to become the world's biggest electric

technological investment as no additional fuel supply

car market this year, with sales estimated at 220,000 to

chains are needed. Alternatives are needed soon, as

250,000 vehicles, according to the official news

China's

agency, quoting the China Association of Automobile

exponentially over the coming decades, exacerbating

Manufacturers.

the current oil and pollution problems.

Worldwide electric cars sales are expected to increase

China has big advantage over other countries in

to 600,000 this year. China can overtake United States

developing strong electric car market, namely it has

as the world's biggest electric car market estimate of

ample ithium and rare earth metals and these are the

180,000 vehicles in the US market. China is no doubt

two main ingredients needed for development of

the leader in global clean energy race but it’s also

electric vehicles.

world’s largest polluter, with large share of its pollution

vehicle

fleet

is

expected

to

grow

Government Encouragement and Regulation

coming from cars. The environmental benefits are really the main reason why china plans rapid

To try and get past these barriers, the central

development of its electric vehicle industry but there are

government has recently pledged millions of RMB

also other benefits to such policy such for instance

towards the domestic development of both EV(

energy conservation and reduce oil imports. There are

Electric

two main reasons why the Chinese government and

capabilities. This investment has come in the form of

industry leaders are enthusiastic about promoting

both consumer-focused subsidies as well as direct

electric vehicles:

government

vehicle)

grants

markets

towards

and

production

research

and

development. EV funding was even recently (1) To reduce China's dependence on imported oil, and |(2) To establish a profitable low emissions vehicle industry in China that would reduce significant pollution problems in urban areas. Electric Vehicles have become the clear leader in achieving these goals when compared to other technologies such as liquid natural gas, hydrogen, or alcohol-based fuel systems.

The Electric Vehicle technology, while not fully mature, has had more experience in the real world than many other non-petroleum alternatives. It also requires significantly less, although by no means negligible, technological investment as no additional fuel supply | D needed.

E C E M B Alternatives ER2015 chains 6are are needed soon, as

China's vehicle fleet is expected to grow exponentially

included as part of the central government's R&Doriented 863 central plan. Locally, the Shenzhen government has partnered with BYD (Chinese Automobile Company) to start introducing plug-in hybrid government vehicles. This was done to encourage their overall use. On the demand side of the market, a 13-city subsidy program was recently initiated in which the central government offered up to ÂĽ60,000 to anyone who purchased an electric or hybrid vehicle.

first time in more than two years in June with buyer cZ

sentiment hit by slowing growth and the country’s stock

market

crash.

The Chinese

economy is

growing at its slowest annual rate in a quarter century and second-quarter growth figures due out next week may

show

that

it

has

slipped

below

the

government’s 7 per cent target for 2015. According to the CAAM (Chinese Association Of Automobile China Association for Automobile Manufacturers

Manufacturers), car inventories grew 6.6 per cent in

announced the country’s plan to have 1million energy

June. Slower economic growth and now declining

vehicles on Chinese roads by 2015, and China has

car sales have led to series of price cuts by foreign

already invested heavily in many research centres

car brands, putting pressure on their domestic rivals.

across the country as Chinese aim to become global

Why are sales booming?

leaders in electric vehicles manufacturing in 10 years time. They have announced that China plans to invest more than 100 billion Yuan (around $15 billion) over next 10 years.

An analyst from the China Automotive Technology Research Centre attributed the jump to the elimination of the vehicle tax on Chinese electric vehicles (until September 2014, buyers were taxed at

China’s priorities are plug-in and pure electrical

10% of the purchase price). Policy-led price

vehicles with lithium ion batteries. China has recently

adjustments have sometimes had spectacular results

managed to overtake United States as the world's

in China’s auto market. For instance, when the

biggest car market. In 2010 alone, China sold more than

country joined the World Trade Organization in

13.5 million cars. China's electric-car industry is

2001, it

developing rapidly, but quality and not just quantity

automobiles. That year, China’s auto market grew by

should be the focus for the development to be

37%, as some domestic producers were forced to

sustainable. Safety and the quality of batteries should

lower prices to remain competitive.

be carefully supervised. The industry saw explosive growth in the past two years, mainly because of supportive government policies, including subsidies and tax cuts.

lowered import tariffs

on foreign

Another possibility is that China’s policies to promote electric vehicles have finally reached a tipping point. For instance, to deal with traffic congestion in major Chinese cities, many municipal

In the first 10 months of this year, sales of electric cars

governments – including Beijing – have limited the

surged 290 percent year-on-year to 171,145, according

number of new vehicle registrations. In Beijing,

to the association's data. Chinese car sales fell for the

electric vehicles are exempt from this quota

first time in more than two years in June with buyer

system. The central government as also instituted a

7 | hit D Eby C Eslowing M B E R 2growth 0 1 5 and the country’s stock sentiment

new set of policies to encourage competition among

market crash. The Chinese economy is growing at its

domestic manufacturers — competitive pressure that

demonstrated a correlation between money locked in stocks and falling sales.

The electric vehicle industry has been rapidly developing internationally due to a confluence of factors such as government support, industry shifts, and private consumer demand. The automobile industry in China has also begun to develop a large and reputable electrical vehicle sector, supported by both the private and public sector. system. The central government as also instituted a new set of policies to encourage competition among domestic manufacturers — competitive pressure that was woefully lacking during the early years of China’s electric vehicle program. Perhaps locally produced vehicles have finally reached a quality threshold that makes them attractive to Chinese buyers. Carmakers in China may likely reveal a fourth month of contracting sales for July after a stock market crash sapped consumer sentiment.

Many Chinese who put money in the mainland bull market in the first half of this year had to delay expensive purchases like cars; however, a crash from mid-June erased as much as US$4 trillion in share value in under a month. What is left of their money is now locked in stocks as many try to avoid losses. Sales in the world's biggest car market were already down as the economy grows at its slowest in 25 years. But the crash likely left July sales falling more than June's 2.3 per cent, analysts said. China's car manufacturing body said it more than halved its sales forecast for this year because of the crash's impact on sentiment, while consultancy

Automotive

Foresight

last

week

demonstrated a correlation between money locked in stocks and falling sales.

8|DECEMBER2015

The

electric vehicle industry

has been rapidly

Dr. LAL PATHLABS LIMITED IPO

ARE OUR CLINICAL TESTERS REALLY WORTH A SHOT?

-Rohit Tillu

India’s been growing at an increasing pace in the recent

situated across India. The share of market that

years. We are expecting a 7.1% GDP growth in the

remains in the hands of the Pan-India institutional

financial year 2015-16. We have been experiencing

players is about 15-16%. Two major private players

high growth rates since the year 2010. Higher GDP

in this industry are Dr. Lal Path Labs and Alkem

growth brings in more employment, more purchasing

Industries Private Ltd, both of which have come up

power and more disposable income in the hands of the

with and Initial public offering for raising capital for

people. The GDP growth is nothing but a function of

expanding their presence throughout India.

higher disposable income as people tend to purchase

Dr. Lal Path Labs

more goods and services when they have more money, which is, nothing but our GDP itself. Nearly all the sectors have been experiencing growth due to increase in the income levels throughout the economy. One of these sectors is the Healthcare sector, which occupies a special place in the expenditure plan and the same has been experiencing a high rate of growth in the recent years. According to a research report, the healthcare sector in India is growing at a compounded annual growth rate (CAGR) of 15%. Also it is expected to reach a valuation of $18.7 billion by the year 2020. The primary reasons that are attributable to its growth are rising lifestyle disorders and the practice of medicine being more evidence based.

Started by Dr. Major S.K. Lal, Dr. Lal path labs is the largest diagnostic chain in the country. With a network of 172 laboratories, 1554 patient service centers and about 7,000 pickup points, they have made sure that their presence is felt throughout the country. Although they operate on a Pan-India scale, 70% of their revenues come from the North Indian region. The company offered 1.16 crore shares which were equivalent to 14% stake in the company.

The promoters offloaded 5% of their share whereas the Private Equity Investors released 9% of their ownership. After the IPO, the stake of the Private Equity holders will be around 23%.This offering was primarily to dilute the promoter stake in the

The diagnostic industry constitutes a small portion of

company, that is, the proceeds of this issue won’t

the healthcare sector. It represents the 9% of the total

issue any fresh capital. The price band for the shares

sector. Valued at ₹37,000 crore, the diagnostic industry

was ₹540-550. It aimed to raise ₹632 crore if the

is growing at a rate of 16-17% in the recent years.

higher price is used for calculation. The issue was

Roughly, 85% of the market in this sector is

oversubscribed by 33 times. They received bids for

unorganized, 48% of which is captured by the

27, 04, 07,780 shares instead of the 81, 20,000 share

standalone private labs throughout the country and the

limit which was prescribed to be taken up by the

rest 37% being tapped by the labs in the hospitals

Securities Exchange Board of India (SEBI).

situated across India. The share of market that remains in the 9hands the | D E CofE M B EPan-India R 2 0 1 5 institutional players is about 15-16%. Two major private players in this

Financially, Dr. Lal path labs seems to be very strong

1.28 crore shares. The price band for the book

as the company is growing at a compounded growth

building process was set at ₹1,020-1,050 which

rate of 21% in the last three years as compared to the

aimed to raise up to ₹1,350 crore. The demand they

industry which is experiencing a 16-17% rate of

received was emphatic. Out of the 90, 87,084 that

growth. The company earned a profit of ₹95 crore on a

they wished to raise, they received applications for

sales of ₹636 crore. The company functions on an

40, 18, 87,780 shares. The portion reserved for the

Asset-light model which entails that the samples are

Qualified Institutional buyers, who are supposed to

picked up from thousands of franchise centers and other

buy up a particular amount of equity stock

labs and processed at their main laboratories, which in

necessarily, was oversubscribed by 57 times. The

turn reduces the setup costs and provides on time and

portion set aside for retail or individual investors was

cost efficient services to their customers. Additionally,

oversubscribed by 2.9 whereas the portion of high

their pick up points facilitate the patients as they

net worth individuals was oversubscribed to an

locations are spread out evenly across the country.

extent of 129 times.

Alkem Laboratories Private Ltd.

According to various expert opinions, Dr. Lal Path

Alkem labs is a Mumbai based provider of diagnostic services which has maintained its position in the top 10 diagnostic service providers for the past 12 years in the country. Alkem produces branded generic drugs and nutraceuticals not only in India but also in 55 other countries around the globe. Alkem has a good chunk of business coming from the United States, but the Indian brands form the major part of its revenue. The company uses the inorganic expansion to drive its growth.

Generally, mergers and acquisitions form the inorganic strategy of expansion.

Labs seem to be a bit overvalued given the quantum of business it does. But having a huge chunk of cash in the Balance Sheet is definitely a good situation as the company does not need to raise fresh funds for their expansion projects, it also seems to be a company whose growth rate is more than the industry average of 16%. If the quantum of business is one of the major criterions of investment evaluation, then Alkem would surely win the treble as it is massive when the revenue and profit figures are concerned. Alkem’s revenues are nearly 5 times as compared to those of Dr. Lal Path labs, and why

Coming to their financials, Alkem has been growing at

would it not be. Dr. Lal Path labs is driving its

a compounded rate of 17-18% which is very much close

business entirely from the Indian Subcontinent itself.

to the industry average. They have posted a robust

As an Investor, both the companies are offering

performance in the financial year 2015-16 with their

equally good opportunities, it is just a matter of one’s

revenue zooming up to ₹2,659 crore. Also the net profit

opinion where they want to invest as it is really

of the company rose by 157% from ₹439 crore to ₹550

difficult to distinguish between them.

crore. The initial public offering of Alkem Labs offers 1.28 crore shares. The price band for the book building | D set E C EatM₹1,020-1,050 B E R 2 0 1 5 which aimed to raise process10was

up to ₹1,350 crore. The demand they received was

LOVE IN TOKYO ENDURES

BULLET PROOF INDIA

-Anupama Kumarswami

23 million people and one mode of transport; one prime

India is ready to hold tender for contracts once it

minister and 1.252 billion people. One promise to

decides upon the Japanese technology. A consortium

broaden this network of transport; one country and one

which would include JR East, Kawasaki Heavy

big investment. A three day visit by the Japanese Prime

Industries and Hitachi is expected to bid for that

Minister Shinzo Abe to India, every futuristic aspect

tender. The Japan International Cooperation Agency

related to this country was finalized. India’s first high

and India’s rail ministry had begun a joint feasibility

speed bullet train project costing $15bn linking

study on high speed bullet trains almost two years

Mumbai in Maharashtra with Ahmedabad in Gujarat

ago. While a report recommending the Shinkansen

with 505km railway line was announced during that

format of bullet trains was issued this late July.

visit. Tokyo will be financing this project through an

Bullet trains zooming off up to 320kph, along the

$8bn loan to New Delhi.

Mumbai-Ahmedabad railway will shorten the travel timespan between the two cities from around eight

Someone truly said, failure is the stepping stone of success. Japan had once failed to win a high speed train deal in Indonesia earlier this year and had lost to a Chinese proposal. Japan won over China and it would be the second successful case of Japan exporting its bullet train technology to a foreign market next to a deal with Taiwan in 2007. Japan’s ministry stated that India was ranked as the second biggest recipient of Japanese government backed yen loans as of fiscal year 2013 with a running total of 4.45 trillion yen. While departing from India, Abe informed the country that Japan will be soon providing one trillion yen ($8.1 billion) worth of loans during the next decade that would finance more

hours to roughly two. Construction is expected to begin in 2017 with a completion slated for the year 2023. The western dedicated freight corridor from Dadri to Jawaharlal Nehru Port (1502km) project is funded

substantially

by

Japan

International

Cooperation Agency. DFCC, a special purpose vehicle (SPV) is engaged in planning, construction, operation and maintenance of the dedicated freight corridors. The eastern corridor from Mughalsarai to Ludhiana is being funded by the World Bank.

Mumbai-Ahmedabad route is the first among the seven high speed rail corridors considered within the investment.

than half of the approximately 980 billion Indian rupee cost of project. It was not just Japan’s success but also

Both Mr. Modi as well as Mr. Abe noted that India’s

was an accomplishment of what Mr. Modi had once

railway modernization and expansion plans open up

promised of high speed links and bullet trains as a key

commercial opportunities for Japanese companies in

campaign promises during the 2014 elections. This

high speed rail, station redevelopment and rolling

railway loan deal would thrust ahead of Indonesia, the

stock manufacturing. Both the countries will further

largest borrower which had a 4.72 trillion yen tally.

explore strengthening their partnership in high speed

India is ready to hold tender for contracts once it 11 | D E C E M B E R 2 0 1 5 decides upon the

railways, which is a high technology field having potential to transform India’s transportation sector.

railways, which is a high technology field having

Indian government has no intentions of taking sides

potential to transform India’s transportation sector.

between China and Japan and it is very well aware

Prime Minister Abe even conveyed his intentions of

that setting itself against Beijing would not bring any

supporting India’s efforts in ‘Make in India, Digital

good to New Delhi. With the help of China’s rise,

India, Skill India, Clean India and Smart City’ by

India is trying to obtain more economic benefits and

sharing advanced skills and technologies and through

thus is unwilling to upset world’s second largest

active mobilization of Japanese public and private

economy. India is very well aware of ties between

sector involvement including the Official Development

Beijing and Tokyo and is being very cautious in

Assistance (ODA). There will be steady progress in

developing ties with Tokyo so as to leave itself a

realizing 3.5 trillion yen of public and private financing

leeway in handling its relations with Beijing. There

to India in five years under the ‘Japan-India Investment

is no need for China being too concerned; still they

Promotion Partnership’. Mr. Modi welcomed the

have sufficient risks in India-Japan tie-up which may

‘Japan-India Make-in-India Special Finance Facility’

become a threat to the regional peace and stability.

up to 1.5 trillion Yen by Nippon Export and Investment

Communications between these nations is very

Insurance (NEXI) and Japan Bank for International

important in this phase of time.

Cooperation (JBIC), which aims to promote direct

India – Japan relationship is going on a new level and

investment of Japanese companies and trade from Japan to India, to support their business activities with

these buds have turned into beautiful blossoms. With Mr. Modi recognizing this special relationship

counterparts in India, including development of

announced that India will extend ‘visa-on-arrival’ to

necessary infrastructure, and to help materialize Make-

all Japanese citizens from 1st march 2016. Mr. Modi

in-India policy of the Government of India. Both the Prime Ministers shared the viewpoints of satisfaction and strengthening of ties between both the countries and this bullet train deal is the first step towards its attainment.

even mentioned about these strong ties by referring the Kyoto-Varanasi partnership as one of its kind strong symbols. Not just Mr. Modi but also Mr. Abe underlines the need for closer coordination and effective communication, bilaterally and with

This India – Japan strategic relationship can contribute

partners to address existing and emerging challenges

to peace and prosperity in Asia and the world. There are

in aspects such as security, stability and sustainable

more benefits of innovation that is awaited by both the

development. India and Japan will be working

countries. China plays a crucial factor behind this closer

towards strengthening regional, economic and

India-Japan relationship. Tokyo is trying every possible

security forums and coordinate their actions to tackle

way to besiege Beijing and Mr. Abe would not ever lose

global opportunities and challenges including the

an opportunity to draw India closer to Japan. While the

reforms of the United Nations, climate change and as

Indian government has no intentions of taking sides

well as terrorism. Japan even invited India’s

between China and Japan and it is very well aware that

intensified engagement with export control regimes

setting itself against Beijing would not bring any good

and two Prime Ministers affirmed their commitment

12 | D E C E M B E R 2 0 1 5

intensified engagement with export control regimes and

Japanese Foreign Direct Investment Flows to

two Prime Ministers affirmed their commitment

India

towards making India a full member in the four

Year

(US $ million)

Regime,

2008-2009

266

Wassenaar Arrangement and Australia Group with an

2009-2010

971

2010-2011

1,256

2011-2012

2,089 (provisional)

2012-2013

1,340 (provisional)

2013-2014

1,795 (provisional)

international export control regimes: Nuclear Suppliers Group,

Missile

Technology

Control

aim of strengthening the international non-proliferation efforts.

ODA loans from Japan Year

Commitment Yen Billion

Disbursement Rs. Crores

Yen Billion

Rs. Crores

2008-09 236.047

11713.32

122.56

5861.48

2009-10 218.2

10694.93

128.95

6553.43

2010-11 203.566

11197.81

123.84

6581.67

2011-12 134.288

8303.01

139.22

8497.43

2012-13 353.106

23179.77

113.964

7259.95

2013-14 101.703

6812

22.320

1249.85

(upto 30.06.2013)

(upto 30.06.2013)

(upto 31.05.2013)

13 | D E C E M B E R 2 0 1 5

PFIZER AND ALLERGAN- THE LARGEST PHARMACEUTICAL MERGER

$160 BILLION DEAL

-Swarupa Roy

The world of corporate and companies are much

affordable healthcare that will cater to every human

broader than we actually think. There are many forces

being. Over the time period 166 years, Pfizer had

that drive the successful business dimension. Most of

several successful acquisitions including Wyeth

the times, it is about a single company’s growth,

which is a Philadelphia based known pharmaceutical

development and profit making, but then, history has

company specializing in manufacturing of OTC

witnessed many ‘Mergers and Acquisitions’ that have

(over-the-counter)

not only changed the course and future of the

Headquartered at New York, Pfizer is listed at New

companies involved, but have also led to powerful

York Stock Exchange, London (PFZ), Euronext and

impact on the world market and economy. Usually

Swiss. The company generated revenue of $49.6

economic background of the companies plays an

billion in the year 2014, and as of 14th December

important role when it comes to merger and

2015, the stock prices of Pfizer Inc. stood at $31.89.

acquisitions, but sometimes the idea or the innovation

Allergan Plc

drugs

and

ibuprofen.

involved also brings two companies together to create a new future altogether. One such recent merger that has caught the world’s attention is the $160 Billion deal between Pfizer and Allergan. The deal has raised discussions and put forth many topics that are being debated world over as we speak now. So, here we are with Pfizer, Allergan and the current most talked merger in the world.

The acquisition of Allergan Inc. by Actavis Plc. led to a newly named company ‘Allergen Plc’. Serving people in over 100 countries, Allergan has established itself as a new leader in the field of ‘Growth Pharma’ and has become a potential name in the area of world generic business. It majorly deals in six areas of health care which includes Dermatology and Aesthetics, CNS, Women’s Health

Pfizer Inc.

and Urology, Cardiovascular and Infectious Disease,

Quoted to be amongst world’s foremost pharmaceutical

Eye Care and GI and Cystic Fibrosis. Recently the

company, Pfizer is a known and trusted name when it

company

comes to producing vaccines, number of medicines and

(Eluxadoine) in United States for the people

drugs. Currently, the company is working towards

suffering from irritable bowel syndrome. Currently,

providing potential vaccines and drugs against diseases

the company is valued at $23 billion and has its

like Cancer and Alzheimer. Founded by Charles Pfizer

headquarters are in Dublin, Ireland and United

and Charles F.Erhart in the year 1849, today, it is one

States. Incorporated in 1985, Allergan earlier known

of the top research oriented pharmaceutical firms in the

as Watson Pharmaceutical, Inc went public in the

world that is applying science at its best to come up with

year 1993. The company’s stock are listed on the

affordable healthcare that will cater to every human

New York Stock Exchange and its stocks are priced

14 | Dthe E C time E M Bperiod ER2015 being. Over

at $ 301.88 as per data on December 14th 2015.

also

launched

a

drug

VIBZERI

New York Stock Exchange and its stocks are priced at

shaping of this merger. Another aspect that merger

$ 301.88 as per data on December 14th 2015.

has highlighted is the tax bill reduction of Pfizer.

The largest merger of pharmaceutical world

This inversion will help the Pfizer Inc. to avoid the American corporate taxes. Overall the finances

In what is said to be the world’s third largest merger and

including the effective tax rate holds promises for

the largest in the pharmaceutical industry, both the

both the companies.

companies Pfizer and Allergan have agreed for a merger deal at $160 billion which will lead to the

Tax aversion, critics and the future ahead

creation of the world’s largest drug company. The main

The merger has paved way for the “tax aversion” to

goal behind this merger is to create a world class global

become the talk of the town. Avoiding the corporate

biopharmaceutical leader that promises innovation and

American taxes is said to be the main reason for the

research at the most optimum level along with including

overseas incorporation. As compared to the

production and delivery of drugs, medicines and

corporate tax rate of 35% in United States, Ireland

therapies that will shape the future of a better health

has only 12.5 percent which will eventually play a

care.

vital role in savings of Pfizer. While the decision is

The merger if successful would be highly beneficial for the both companies who are considered amongst the best in their league. The combined company would be led by Pfizer’s CEO Ian Read, while the position of President and Chief Operating Officer (COO) will be undertaken by Allergan’s CEO Brent Saunders. The announcement of the deal already had it breaking records and setting new records, with it being called the largest inversion till date where a U.S based company will merge with a foreign company according to which it will officially become a foreign-owned firm but its main business and operations would continue in the United States. With the merger, the enterprise will retain its listing in primary stock exchange. A number of aspects including the production of medicines and vaccines will receive a boost up, plus the different acquisitions that the respective companies were planning or have confirmed will play a vital role in shaping of this merger. Another aspect that merger has 15 | DisEthe C E tax M Bbill E R 2reduction 015 highlighted of Pfizer. This

totally on a positive side for the company, it has not gone down well with many, with the critics having considering it a step that will cost the U.S treasury the tax amount. And, in the lights of the events and the current markets, the merger is quoted to be ‘highly strategic’ which has only strengthen the company’s position by giving an uplift to the slightly declining stock prices of Pfizer. The deal has pros and cons like every other thing. So, while the PfizerAllergan merger promises to make the world a better place by trying to deliver some of the finest medicines and therapies, there will be a hole if only a small one in the United States tax revenues, whereas the Ireland will welcome some amount of cash flow in their economy. What the world’s biggest drug makers plan to deliver with this merger is the point entire the world has its eyes on.

INDIA’S GDP AT 7.4%

OUTPACING CHINA

-Hemlata Hajong

It is like a dream come true for the Indian economy for

during April-June 2015, but slower than the 8.4 %

it is growing faster than China. Average growth rate of

growth registered during the second quarter of the

7% for the last two decades made India the seventh

last fiscal year. However it was better than the

largest in the world by nominal GDP and the third

market expectations of a 7.3% increase. GDP annual

largest by purchasing power parity (PPP). But from the

growth rate in India averaged 6.02 % from 1951 until

last quarter of 2014 India became the world’s fastest

2015, reaching an all-time high of 11.40 percent in

growing major economy as the growth rate rose to

the first quarter of 2010 and a record low of -5.2% in

7.4%. With this the Indian economy has the potential to

the fourth quarter of 1979.

become the world’s third largest economy by the next

Various reasons lead to the increase in GDP. From

decade and one of the largest economies by mid-

RBI’s low tax rate to Prime Minister Narendra

century. Two years ago, an HSBC analyst called India

Modi’s “Make in India” agenda, everything left a

a “gasping elephant”. And from the third quarter of 2013, India has become the center of emerging market investors.

positive note on the GDP. GDP is calculated on the basis of three sectors, namely-agriculture, industry and services. India ranks second worldwide in terms

By the turn of the 21st century India became a free

of farm output. It is the largest producer in the world

market economy. Also India enjoyed high growth rates

of milk, jute and pulses and the second largest

for a period from 2003 to 2007 with an average growth

producer of rice, wheat, sugarcane, cotton and

rate of 9%. Goldman Sachs then predicted that India’s

groundnuts. In 2014 agriculture accounted for 17%

GDP in current prices would overtake France and Italy

of the GDP. Whereas Industry accounted for 26%

by 2020, Germany, UK and Russia by 2025 and Japan

and services accounted for 57% of the GDP. But the

by 2035, making it to the third largest economy of the

major areas for the growth of GDP in the second

world, behind the US and China. But the global

quarter of fiscal year 2015 are manufacturing,

financial crisis of 2008 changed the game. India entered

mining and services sectors. Higher domestic

a period of slow growth. Other economic problems also

demand and manufacturing activity charged the pace

became evident. And so foreign investors pulled out

and that is why the sector that witnessed a splendid

money from the Indian markets. But India has gained

growth was manufacturing, where the output rose 9.3

its pace again. From a growth rate of 7% in the previous

% as against 7.9% a year ago. According to the

quarter it has accelerated to 7.4 % in the July-September

World Bank, India’s industrial manufacturing GDP

quarter, overtaking China whose growth rate stood at

output in 2015 was 6th largest in the world on current

6.9%. The expansion was more rapid than the 7.1% rise

US dollar basis. The agriculture sector stood at 2.2%

during April-June 2015, but slower than the 8.4 %

as against 2.1%. Due to lack of monsoon this sector

growth registered during the second quarter of the last

has seen a slow growth for the second consecutive

fiscal year. However it was better than the market

year. Trade, hotels and transport and others

16 | D E C E M B E R 2 0 1 5

as against 2.1%. Due to lack of monsoon this sector has

growth in manufacturing but weak rural and external

seen a slow growth for the second consecutive year.

demand holds back stronger overall outlook.

Trade, hotels and transport and others witnessed a better growth of 10.6% as against 8.9% a year ago. Public administration, defense and other services increased 4.7%, the construction sector increased 2.6%, mining and quarrying went up 3.2% and utilities production rose 6.7%. Government expenditure also increased 5.2% and gross fixed capital formation went up to 6.8%.

The Gross Value Added (GVA), a new concept introduced by CSO (Central Statistics Office) to measure the economic activity, also increased during the second quarter to 7.4% from 7.1%. Also, the Reserve Bank of India cut the interest rates by half a percentage point to 6.75%. This allowed banks to lend more capital, rather than keep it locked away. The Finance Minister of India, Arun Jaitley has also revised individual and corporate taxes. The corporate tax rate in India now stands at 34.61%. It averaged 35.02% from 1997 until 2015, reaching an all-time high of 38.95% in 2001 and a record low of 32.44% in 2011. This happened in the wake of Indian companies relocating to Dubai and Mauritius because of taxes. Then the decline in commodity prices came as a light in the darkness.

India’s economy has gained a lot from this decline. It’s deficits are mainly due to oil and gold imports. The decline has helped to absorb the loss faced by oil companies and kept inflation under control, which in turn has helped the Reserve Bank to ease up the rates.

The fall in prices has given a chance to make farm subsidy reforms that could reduce government expenditures

on

fertilizer

and

food

subsidies.

According to Raghuram Rajan there are areas of robust growth 17 | D E C E M B E R 2 0 1 5

All these are a part of Modi’s “Make in India” agenda. The Modi government has completed one year on 26th of May this year. And within a year the country has seen a lot of changes, both positive and negative. The acceleration in economic growth will boost the government to get the economy back on rails as the top-most priority. Modi has vowed to provide a transparent and predictable tax regime as well as protection to Intellectual Property Rights.

Now, the government is aiming for the economy to grow at over 8% as India is seen as a bright spot after the contraction witnessed in some of the other emerging market economies such as Brazil and Russia. Yet, the demand doesn’t allow much of fresh investments. It needs to go slow. Narendra Modi said, “Reform is not an end in itself. Reform for me is just a way station on the long journey to the destination. The destination is the transformation of India.”

SECTOR GROWTH SLUMP 25-MONTH LOW

MANUFACTURING ACTIVITY DIP

-Sandhya Adhavan

India’s development as well as growth strategy has

services, industrials and manufacturing, mining and

placed an enormous importance to realize its dream of

agriculture. For each sector we have a method of

industry–led development. Manufacturing industry is

measuring the growth. One such index that helps us

of utmost importance for the development of any

to measure the growth of the manufacturing sector is

economy. India is believed to have a large number of

PMI (Purchasing Managers Index). PMI is a very

people who fall under the working age group, which in

important

itself is a double edged sword. India largely depends on

manufacturing, but also the economy as a whole. It

manufacturing industry for growth and employment.

is good indicator of future GDP levels. Many

Which is why initiatives like Make in India, MUDRA

economists will adjust their GDP estimates after

etc. were started, encouraging the entrepreneurial spirit

reading the PMI report.

thereby aiming at making India the manufacturing hub of the world.

Large

scale

sentiment

reading,

not

only

for

PMI indicates the health of the manufacturing sector.

It is a composite index of five "sub-indicators",

industries

not

only

provide

job

which are extracted through surveys from more than

opportunities but also play a vital role in exports,

300 purchasing managers from around the country,

resulting in an increased foreign exchange earnings

chosen

leading to overall inclusive growth. Though the

diversification benefits. The five sub indicators are

contribution of Indian manufacturing sector has been

new orders, inventory level, production, supplier

satisfactory, it has not been able to keep pace of

deliveries and the employment environment. PMI is

employment generation. The contribution of this sector

classified into eight categories of basic metals,

has to increase so as to improve the people’s standard

chemicals and plastics, electrical and optical, food

of living.

and drink, mechanical engineering, textiles and

Purchasing Managers Index One of the best methods of measuring the standard of

for

their

geographic

and

industry

clothing, timber and paper and transport.

Performance of the Manufacturing sector

living of the people is Gross Domestic Product (GDP).

Now that we know the importance of manufacturing

It is also one of the primary indicators that is used in

sector in India, let’s understand the current scenario

estimating the health of the country’s economy. That is,

of the sector and try to unveil its impacts on our

monetary value of all the finished goods produced in the

economy.

country in a specified time. The total GDP comes from four components of economic activity which are services, industrials and manufacturing, mining and 18 | D E C E M B E R 2 0 1 5

agriculture. For each sector we have a method of

"November PMI data point to tepid manufacturing growth across India, with gloomy domestic demand resulting in weakest expansion in production in 25 months," said Pollyanna De Lima, economist

growth across India, with gloomy domestic demand

while a contraction was seen in the capital goods

resulting in weakest expansion in production in 25

category,” the survey said. Significant increase in

months," said Pollyanna De Lima, economist at Markit,

Export orders at consumer and intermediate goods traded in US currency, an increase in value of dollar firms were witnessed. Delayed payments from accompanies a decrease in its price. clients and labor shortages were also faced my many The crisis in"Digging international market has also negatively companies. deeper into detail, intermediate

the agency that compiles the PMI index.

The manufacturing sector grew at its weakest pace in two years in November due to the sluggish flow of orders and decreased demand. The Nikkei India Manufacturing Purchasing Managers' Index (PMI) fell from 50.7 to 50.3 in November from the previous month. If the PMI is more than 50, it represents expansion and if it is less than 50 then it indicates contraction in the sector’s growth. This clearly indicates the need for sustainable reform measures for growth. Various reasons for the decrease in PMI are as follows. Input cost inflation increased and there was a fall in the factory gate prices. Depletion of finished goods at the market happened in a faster pace in three years. Improvement in the business conditions were noted as the consumer goods performance was more than expected. But the conditions of the intermediate

affected the pricedrove of gold.

The downfall in the goods sub-sector the deceleration in growth.

Chinese economy has and led output to massive of fell 30 New business inflows in thisselling category tonnes Shanghai Exchange for thegold first attime since Gold December 2013.because While people in market wanted to pay off the debts investment goods producers saw a reboundand in liquidate every possible investment they had done.

November, the consumer goods sector remained the As a result price goldThere dipped toaits lowest due bright spot,"the said De of Lima. was marginal rate to thanthe demand and forcing people of excessive inflation, supply however companies were said to to sellpaid at lower prices.

Iran’s with and the have higher process fornuclear metals,deal textiles West led toBank reduction in conflicts in those regions food. has Reserve of India (RBI) had not changed which in turn indicated gold prices be lowered. the policy rates.

It was the stagnant at 6.75topercent.

Further, Greece has been in the danger of being Conclusion removed from Euro list. It has a huge amount of debt which it dealt with by itself sealinginto a last minute dealnation with India will transform a developed its creditors imbibing less value of gold. through the thus growth of its manufacturing industry in

a slower pace. “New business from abroad increased

a sustainable manner. For this we need to emphasize Moving to the factors internal to Indian economy, the not just an increase in tax incentives, infrastructure government and Reserve Bank of India (RBI) have projects but a continuous improvement in price, taken several measures to curb gold imports resulting quality and response. Therefore, need for in lowering its prices and making it as an option for comprehensive, long-term novel policies are investment asset. This reduction has attracted required for sustainable growth of manufacturing consumers leading to healthy demand and high industry. The PMI of manufacturing sector is closely consumerism. The unpredictable pattern of monsoon watched not just for the sector but for the economy is also a matter of concern. India is the second largest as a whole, as it is the industry where the recession consumer of gold out of which rural population tends to begin and end. contributes to about 60% of overall buying of

further in November. Although only slight, the rate of

products. With a good monsoon over the year the

growth was the strongest in three months. New export

demand for gold would increase especially during

orders rose at consumer and intermediate goods firms,

the festive season. On the other hand, lower levels of

while a contraction was seen in the capital goods

monsoon would negatively impact the demand for

goods companies fell for the first time in two years.

“Signs of the sector slowing have been building up, as growth of both new orders and output has eased in each of the past four months,” said Pollyanna De Lima, economist at Markit. She added that the disappointing news is accompanied by a stagnant labor market in the sector.

Increase in the new businesses from abroad was seen at

19 | D E C E M B E R 2 0 1 5

category,” the survey said.

gold thus leading to an increase in its price.

According to the facts, India has been the world’s

SECTOR ANALYSIS

THE INDIAN HOTEL INDUSTRY

-Jatin Sharma

India is on its way to become a sought after tourist

companies like EIH and foreign hotel chains like

destination in the World. Foreign tourists and inbound

Shangri-La, Marriot, etc. International brands are

tourist are increasing rapidly due to factors like

looking forward to increase their presence in India

increasing

in

due continuous strong performance of Indian tourism

telecommunication technologies - tourism are services

industry. A segment that is picking up is budget

just a click away. The domestic hotel industry is

hotels to cater to the needs of young travellers. Tier

estimated to touch $1.8 billion by 2016, from $0.8

1 and Tier 2 cities are witnessing increasing influx of

billion presently, buoyed by rise in online bookings

people and most of the big players have already

(ICRA Report 2015).

committed investments in this region.

disposable

incomes,

advancement

Improvement in medical

facilities is another factor attracting people to India. The

Financial dynamics of Hotel industries

Indian Medical Tourism market is expected to grow from its current size of USD 3 billion to USD 7-8 billion by 2020," Grant Thornton India's National Managing Partner Vishesh C Chandiok said. With expectations of high growth and increase in competition, the dynamics of industry are undergoing a big change. The increasing importance of online travel agents (OTA) like MakeMyTrip, Yatra.com and GoIbibo. Airbnb – an online marketplace for people to list, find and rent an accommodation. Airbnb is like the OLX of hospitality.

Online budget hotel online portals like OYO Rooms, Zoyo Rooms and stayzilla are an instant hit amongst students and middle class travellers. Online booking is still underpenetrated with just 16% bookings done online while online booking rate in 70% in Europe, 35 - 40% in the US.

The three major indicators of financials of hotel industry are ARR (average room revenue) and occupancy and Revpar (revenue per available room).

Tourism is a highly seasonal business with demand picking up in the beginning of the year and towards the end of it.

The numbers for both ARR and

occupancy have weakened compared to last year for hotels of different categories, which means that the Revpar overall would take a beating. Revpar shows the monthly revenue per available room of hotels in India in 2014 and 2015. In April 2014, the revenue per available room of hotels in India was 51.50 U.S. dollars, down from the 59.56 dollars seen in March.

High debt levels would come in the way of investments for the industry as a whole though there are some firms with prudent levels of debt-equity

Hoteliers in India

that can leverage this advantage to strengthen their

The major players in Indian hotel business are Indian

current positions.

conglomerates like TATA and ITC, pure hotel companies like EIH and foreign hotel chains like Shangri-La, Marriot, etc. International brands are | D E C EtoMincrease B E R 2 0their 1 5 presence in India due looking20forward

continuous strong performance of Indian tourism

Key Players Company

Type of properties Luxury,

Indian Hotels

Brands

mid-segment Taj, Gateway, Vivanta and Ginger

and budget

Company Limited Luxury, budget and ITC

heritage hotels

ITC Hotel—Luxury Collection, Welcome Hotel—Sheraton, Fortune and Welcome Heritage

Welcome Group Oberoi Group

Business hotels,

EIH

leisure hotels and

Oberoi and Trident

cruises Luxury, business hotels, Radisson Hotels and Resorts, Park Carlson

economy and

Plaza, Country Inns & Suites, Park Inn

cruises Luxury, InterContinental

mid-segment InterContinental, Crowne Plaza,

and business hotels

Holiday Inn, Holiday Inn Express, Hotel

21 | D E C E M B E R 2 0 1 5

% of

Company

Last Price

Change

% Chg.

Debt

1

Hotel Leela

19.75

0.10

0.51

4,996.38

85.73

2

Indian Hotels

107.55

0.65

0.61

2,899.09

40.27

3

Asian Hotels

129.10

1.70

1.33

809.79

42.65

4

Viceroy Hotels

17.70

-0.35

-1.94

389.03

51.76

5

Country Club

12.55

0.03

0.24

331.74

28.21

6

Oriental Hotels

22.05

0.35

1.61

289.36

43.31

7

Taj GVK Hotels

90.80

0.55

0.61

285.56

39.28

8

Kamat Hotels

47.55

-2.60

-5.18

202.06

36.65

Liability

Table 1: Debt levels

Type

Occupancy (%)

Room Rate (MOP$) %

2015

2014

Diff.

2015

2014

Growth

All type of Hotels

83.89

89.95

-6.06

1,418.31

1,540.20

-7.91

5 star hotels

81.93

89.69

-7.76

1,744.95

1,822.59

-4.26

4 star hotels

86.53

89.85

-3.32

865.16

1,023.17

-15.44

3 star hotels

88.81

91.65

-2.84

978.03

1,207.46

-19.00

Table 2: Trend of ARR and Occupancy Rates

22 | D E C E M B E R 2 0 1 5

Consolidation in Industry With India emerging as a hot tourist destination, International tourism players are having a heightened interest in India. Brand swapping which is uncommon in developing nations is becoming a common sight. For an instance ITC has taken over four Raviz properties in Kerala, Lemon Tree replaced Golden Tulip in Jaipur and the Meridien in Ahmedabad. The merger of Starwood hotels into Marriott International, Inc. will create the World’s biggest Hotel Company in India. The

agencies, tour operating agencies and Tourist transport operating agencies, units which facilitates cultural, adventure and wild life experience to tourists, units providing surface, air and water transport facilities to tourists, sectors which offers leisure, entertainment, amusement, sports, and health related facilities to the tourists. Inclusion of Hotels in infrastructure has opened access to rational rates of interest and would untie the debt tied hands of hotels investors.

combined group would even surpass IHC in terms of

Visa Rules

numbers of rooms. This gives a global presence and

The ease in Visa norms in terms of including more

increased bargaining power against agents both online

countries in the VISA on arrival list. Reducing

and offline. Even the Indian companies are on an

documentation requirements on Visa exempted

expansion phase with more than 200 new hotels spread

countries and including features like biometrics

across nearly 50 brands are expected to be operational

scanner and online visa application would simplify

in the next four-to-five years in India. About 52,000

the process of visa acquiring.

rooms are expected to come on stream by 2017.The major chunk of new hotels coming from the house of Marriott, ITC and IHC. Policies

Conclusion The tourism industry is slated to continue its strong performance due series of factors like affordability, rich ecological bounty – ranging from snowcapped

Investment Policy

mountains of the North to the deserts of Rajasthan

1oo percent FDI is permitted in the Hotel and Tourism

and beaches of south. Quality medical facilities that

in India under various approvals. Under Automatic

will not burn a whole in your pocket is also bringing

route, FDI is allowed only up to 51 percent in this

hordes of travelers from inside and outside the

industry. As per FDI guidelines for hotel and tourism

country. Air travel getting economical and wide-

industry in India, following are the sectors, in hotels,

spanned and quality national highways laid across

which have been receiving the maximum amount of

the length and breadth of the country are all giving

FDI Inflows for the past few years are restaurants,

rise to tourism. Government support in terms of visa

beach resorts, tourist complexes which facilitates

norms relaxation, easy financing and increased

accommodation and catering to the tourists, travel

cleanliness through Swach Bharat Abhiyaan.

agencies, tour operating agencies and Tourist transport operating agencies, units which facilitates cultural, 23 | and D E Cwild E M Blife E R 2experience 015 adventure to tourists, units

providing surface, air and water transport facilities to

ECONOMIC CONCERNS

-Prateek Pandey

THE DANGEROUS DEBT “Need not be Lannister, but will have to pay the debt”.

Indian debt has been the third-highest recipient of foreign fund inflows in 2014-15 after Japan and South Korea in the Asia-Pacific region excluding China. The main reason behind the foreign investors preference in putting money into India is the yield differential between India and developed markets like US. The accommodative monetary policy being followed by

increasing by US$ 29.5 billion (6.6 per cent) over the

Federal Reserve in US and European Central Bank to

level at end-March 2014. The external debt-GDP

revive their economies and stimulate investment

ratio was 23.8 per cent at end-March 2015, as against

demand and consumption has kept the interest rates low

23.6 per cent at end March 2014. The increase in

in those countries. The debt flows in India are high due

long-term external debt during the year was

to the prevailing high interest rates and also because the

primarily on account of rise in commercial

rupee is a relatively stable currency among other

borrowings and NRI deposits. The growth in

emerging markets. The Indian rupee has depreciated

commercial borrowings can be attributed to the rise

relatively lesser as compared to Brazil’s real and

in

Russian ruble.

borrowings. Short-term external debt stood at US$

Debt scenario in India is very close to those which have

84.7 billion at end March 2015, showing a decline of

affected other emerging economies within the world,

7.6 per cent over US$ 91.7 billion at the end March

namely from having an overheated economic situation

2014. This owed mainly to the decline in Foreign

which expanded very quickly just at the time economies

Institutional

in the rest of the world slowed down or stagnated. The

Government Treasury bills (T-bills). Beginning

problem, however seems to lie with how India didn’t

April 07, 2014, FIIs were prohibited from investing

fend for its own. In short, it allowed investors to come

in Treasury bills. All outstanding FII holdings in T-

in with their cash, establish themselves with their

bills as on April 07, 2014 were allowed to taper off

interests and companies, and pay off those who in turn,

on maturity/sale. On account of this, FII holdings in

paid no attention to the country’s internal ailments such

T-bills (stock position) has steadily declined from

as production slowdowns. India’s external debt stock

US$ 3.7 billion at end March 2014 to zero at end

stood at US$ 475.8 billion at end-March 2015,

March 2015. Also, the share of short-term external

increasing by US$ 29.5 billion (6.6 per cent) over the

debt in total external debt declined from 20.5 per cent

| D E C E M2014.

B E R 2The 0 1 5external debt-GDP ratio level at24end-March

at end-March 2014 to 17.8 per cent at end-March

was 23.8 per cent at end-March 2015, as against 23.6

2015.

commercial

bank

Investors

loans

(FII)

and

securitized

investment

in

25 | D E C E M B E R 2 0 1 5

debt in total external debt declined from 20.5 per cent

As far as other sources which constitute to the debt

at end-March 2014 to 17.8 per cent at end-March 2015.

composition

The currency composition of India’s external debt also showed that the debt denominated in US dollar continues to remain the predominant component accounting for 58.3 per cent of total external debt at end March 2015, followed by debt denominated in Indian rupee (27.9 per cent), Japanese yen (4.0 per cent) and Euro (2.4 per cent) as per the august financial report of the country. The rise in external debt during the period i.e. financial year 2014-2015 was also due to the higher levels

of

commercial

borrowings,

particularly

commercial bank loans and securitized borrowings, and NRI deposits. External commercial borrowings (ECB) has been a crucial determinant of the magnitude of India’s external debt.

of

the

country

are

concerned,

multilateral sources continue to dominate India’s sovereign external debt and Japan remains the single largest bilateral creditor. The composition of multilateral sovereign borrowing is undergoing a transformation with increase in the share of International

Bank

for

Reconstruction

and

Development (IBRD) and Asian Development bank (ADB) loans over the last few years indicating lesser access to loans on concessional terms in the coming years, especially with terms on International Development

Association

(IDA)

borrowings

beginning to harden.

To Sum-Up At the end, Indian economy is more resilient today

External Commercial Borrowings (ECB) has been a

than in mid-2013. But complacency is not an option.

significant component in India’s external debt and the

The remaining soft spots will come under scrutiny

key driver of its magnitude. Increase in India’s external

during bouts of weak risk appetite, reiterating the

debt during financial year 2014-15 was primarily on

need for pre-emptive measures to deal with potential

account of rise in commercial borrowings and NRI

external shocks. We expect the RBI to continue

deposits. The rise in commercial borrowings was due to

building reserves to counter the consistent rise in

spike in commercial bank loans and securitized

external debt, guard against volatility and arrest

borrowing. ECB has always been occupying the highest

undue Indian rupee appreciation. This has been a

share in India’s external debt over the years. Debt

hard lesson for India, and one it will soon not forget.

service on external commercial borrowings, with share

India might possibly rebound, but as of now, the

of 75.1 per cent, dominated the India’s debt service

gloom and doom seems continues to increase across

payments, followed by NRI deposits, external

the board, from those who prospered and others who

assistance and rupee debt. The dominance of external

never was part of the good times the country

commercial borrowings is an indication of growing

previously enjoyed.

recourse to the use of ECBs by the companies to meet their financing requirements.

Even through, International comparison based on | D E C E'International M B E R 2 0 1 5 Debt Statistics 2015' World 26Bank's

indicates that India continues to be among the less

MARKET WATCH

A MAKE OR BREAK?

-Chestha Kumar

It was a brutal weak across the capital markets. From

26500

stocks to oil to junk bonds, the selloff took it tolls on

26000 25500

Top 5 gainers

LTP

% change

Reliance Com.

80.90

6.24

Adani Ports

254.55

5.56

JSW steel

1020.5

5.43

Hindalco Inds.

78.80

3.34

are Paras Petrofils and Rasoya Proteins with -ve change

Cummins India

1023.45 3.30

(-20) and (-14.29).

Top 5 losers

LTP

% change

Paras Petrofils

0.20

-20

Rasoya

0.30

-14.29

2.70

-12.90

Blue Chip India 0.35

-12.50

JCT electronics 0.35

-12.50

2012.37. More than half of that came on friday alone, with the index dropped 1.9%. The S&P is now off 5.6% from its may, and all-time high, of 2131. It is now down 2.3% on the year, and 3.3% for december.

Among the top gainer is Reliance Comm. and Adani Ports with the change in (6.24) and 5.56. The top losers

8000 7900 7800 7700 7600 7500 7400

Proteins Chromatic

CHART 1: NIFTY

27 | D E C E M B E R 2 0 1 5

12/10/2015

12/8/2015

12/6/2015

12/4/2015

12/2/2015

11/30/2015

11/28/2015

11/26/2015

11/24/2015

11/22/2015

11/20/2015

11/18/2015

11/16/2015

India

CHART 3: S&P 500

12/10/2015

12/8/2015

12/6/2015

12/4/2015

12/2/2015

CHART 2: SENSEX

For equities, it was the worst week . The S&P 500 lost 3.79% this week, down 79 points and finishing at

11/30/2015

EQUITY

11/28/2015

really is for higher interest rate.

11/26/2015

24000

11/24/2015

fresh relief the question of just how prepared the market

11/22/2015

24500

11/16/2015

pivotal meeting of the federal-reserve, it throws into

11/20/2015

25000

11/18/2015

investors everywhere. Coming just days ahead of a

Commodity Market

Currency Market

Gold price jumped by Rs. 290 to regain the Rs. 26000

The Indian Rupee generated at a fresh 2 year low

level in Delhi bullion market on saturday. Bullion

today. It is expected to open above 67/dollar as

traders attributed the rally in precious metals to a firm

globally the markets are reflecting strong risk-off

tend overseas and fresh buying by jewellers to meet the

sentiment. Any dips towards 66.75/dollar should

ongoing wedding season demand. Gold rates in new

lead to importers buying dollars to hedge their future

york, which normally determine price trend on the

dollar payables. Rupee may appreciate as dollar

domestic front, rose by 0.25% to $1,074.20 an ounce in

weakened in the international market and the US

friday's trade. In the national capital, gold of 99.9 and

non-farm payroll data is expected to be against the

99.5% purity zoomed by Rs. 290 each to Rs. 26000 and

dollar.

Rs. 25,850 per ten grams respectively. The precious

Currency

Rupees

other hand, silver dipped below 34,000 by losing

DOLLAR

66.79

Rs.200 to Rs.33,850 per kg and weekly based was down

EURO

73.44

POUND

101.71

metal had lost Rs. 130 in previous two days. On the

by Rs.265 to Rs.33,980 per kg. Brent and US crude's West Texas Intermediate (WTI) futures fell a much as 5 percent on the day and 12 percent on the week as mild pre-winter weather and a plummeting US stock market added to the toll on oil prices. Oil prices end below $36

BOND Market

barrel, down about 11% for the week- their largest

Stocks finally noticing the Red Flag In JUNK-

weekly decline of the. year.

BONDS. The junk-bond market has been flashing a

Commodity

Prices

GOLD

25,850

SILVER

33,980

NATURAL GAS

134.30

CRUDE OIL

2,403

warning-sign about conditions in the capital market for some-time.

Conclusion The volatility in the commodity market and the U.S federal decisions may create ambiguity in the trading patterns of the investors. Though the stock market closed in red but comparatively performed better in the emerging markets.

28 | D E C E M B E R 2 0 1 5

READY FOR CONSUMPTION-DRIVEN GROWTH?

7th PAY COMMISSION BOOSTER

-Ishan Gupta

The seventh pay commission last month submitted its

revenue was going into paying salaries. In some

report to the central government. The commission

cases it was so brutal that 13 states had no money to

which is constituted once every 10 years generally has

pay salaries in 2000. In the wake of this disaster some

two consequences. On one hand it boosts India’s

state governments sought a mechanism which would

consumption driven economy and on the other hand it

stop the centre from announcing a pay revision

destabilizes the already strained central and state

without consulting the states. Despite such carnage,

government finances. Before we proceed with the

bowing to coalition pressures the UPA government

economic impact let us first understand the basics of the

formed the sixth pay commission which was

pay commission. The pay commission was setup in

implemented in 2006. The sixth pay commission

1956 by the government of India to determine the

pegged the minimum salary to Rs 7,000 a month

salaries of government employees. The first pay

(2.74 times). The street is split about the impact of

commission was established in the same year and since

the sixth pay commission in 2008. There was an

then after every decade a new commission is

impact on consumption but according to an HSBC

established that decides the wages of government

report it was marginal.

employees for a particular time-frame. The last pay

The seventh pay commission proposes an increase of

commission, the sixth pay commission, was formed in

~24% to wages. The minimum wages has been raised

2006 when the UPA government was in power.

to Rs. 18,000 (2.57 times). Some experts also hailed

To better understand the pay commission and its impact

other suggestions of the report like a reasonable hike

on the economy let us look at the previous two

(as compares to the previous commissions), breaking

commissions in brief. The fifth pay commission

from the vicious cycle of higher expenditure-higher

recommended to increase the minimum salary of

inflation and reduction in the duration of the

government employees by 3.4 times to Rs. 2,550 per

commission to 5 years from 10 years. Although the

month. This came into force in 1996 and the effect it

seventh pay commission proposes a lower hike than

had was felt by the government for years to come.

the last two, it is going to have a strong impact on the

Before the Fifth Pay Commission recommendations

government finances and the economy. Let us look

came into effect, the central government's wage bill

at the two sides of this coin.

stood at Rs. 218.85 bn in 1996-1997. It shot up by

The commission recommendation comes as a blow

nearly 99% to Rs. 435.68 bn in 2000. The state

to the investors expecting a strong recovery in

governments' wage bill went up by 74% to Rs. 898.13

government finances set in motion by the reduced

bn in 1999. Experts estimate that almost 90% of states

commodity prices (mainly crude oil). Although the

revenue was going into paying salaries. In some cases

government is trying to negate the impact on its

it was 29 so |brutal D E C Ethat M B E13R 2states 0 1 5 had no money to pay salaries in 2000. In the wake of this disaster some state

finances, but in absolute terms it is

government is trying to negate the impact on its finances, but in absolute terms it is a sizable flow. It will result in an additional outflow of Rs. 1.02 lakh crores (0.65% of the GDP). About 30% of this will come from the railway budget. The impact is sizeable considering that the government does not even plan to reduce the deficit by this margin. The government defended the impact by saying that the recommendations will be implemented in the next few years (the employees will be paid arrears from Jan 2016) and by that time, based on growth prospects of the country, they will be able to manage both the higher expense and the fiscal consolidation. But one must also realize that the government main source of income (corporate tax) will be reduced in the coming years. It will be interesting to see as to how government will manage the higher growth when the global economy is going through such

irrespective of market conditions. Thus it will be interesting to see what impact it will have. The market is expecting the states to follow suite and pump in an addition Rs. 2.4 lakh crores or another ~1.5% to the GDP over the next few years. The bulls are riding on automobile, consumer durables, jewelry and real estate companies to gain most from the pay hikes. Also, sectors like steel, electric goods, auto ancillaries and banking are likely to gain from this extra consumption.

turmoil and the extensive part of the fiscal consolidation

This step to increase consumption is a good step

can be attributed to commodity prices (and the

forward, but there are still a lot of things that need to

government has to maintain the OROP as well).

be factored in. The major question relates to the

On the flip side, it means higher consumption expenditure. India is a consumption driven economy and one can expect that this will boost the GDP by at least ~0.5%. However, the market reaction was pretty diluted. This can be attributed to two reasons: firstly, the increase was lower than the sixth pay commission; secondly, even after the implementation of the sixth pay commission there was not an immediate or strong jump in consumption. One can suggest that the sub-prime crisis and the inflated prices in the economy had a role to play in this. However, one must remember that a government employee is assured of a fixed amount irrespective of market conditions. Thus it will be interesting to see what impact it will have. The market 30 | D E C E M B E R 2 0 1 5

is expecting the states to follow suite and pump in an

government ability to fund this burden. It heavily depends upon a robust economic growth and suppressed

commodity

prices;

otherwise

the

government will be forced to raise taxes which will negatively affect the consumption in the economy. In case the response remains as muted as it was after the sixth pay commission then what was the use of such a large burden on the exchequer and with this kind of spending are we again looking at a delay in fiscal consolidation.

GST BILL

ONE HUNDRED AND TWENTY-SECOND AMENDMENT BILL, 2014

-Ranu Sarupria

The Goods and Services Tax is a value added tax that

For manufacturers and producers

will replace all the indirect taxes levied on goods and

One tax: The common base for charging GST for

services by the Government both the Central and States,

Centre and the state will consist of an amalgamation

once this is implemented. The GST is all set to

of both centre and state taxes which will enable them

consolidate all the state economies. This will be one of

to give one tax rather than giving about 16 taxes.

the biggest taxation reforms that will take place in India



once the bill gets officially green signal to implement.

The basic idea is to create a single, comprehensive and undivided Indian market to make the economy stronger

Distinction between goods and services will go: In some cases, there is a distinction between goods and services when they are sold as a package. These controversies will go.

and powerful. 

Benefits of GST

Invoicing will be simpler: At present, the invoices are more detailed since taxes on goods and services

GST will be beneficial to the Centre, states,

are written separately for one transaction. This also

industrialists, manufacturers, the common man and the

leads to delaying of delivery of goods at destinations.

country at large since it will bring more transparency,

The abolition of entry tax will be a great boon for the

better compliance, revenue collections and increase

movement of goods by road transport.

in GDP growth.



Common

exemptions

between

Centre

and

For Centre and States

states: Now the exemptions given by the Centre and

By implementing GST, India will gain $15 billion a

the states being different, the final price becomes

year. This is because, it will promote more exports,

different in different states. In the GST regime,

create more employment opportunities and boost

exemptions will be common between the Centre and

growth.

the states which will make the rates of duty same all

It

will

divide

the

burden

between

manufacturing and services.

over India.

For Individuals and Companies

The complicated political bargaining that has held up the introduction of the goods and services tax. The

In the GST system, tax for both centre and state will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefitted as the price comes down resulting in more consumption and production which helps companies to prosper.

Narendra Modi government is keen to get the GST Bill passed in the Monsoon session of Parliament.

The present bill will add to tax burden on the poor and the middle class, as taxes would now be in the range of 22%-27%, against 16%-18% proposed by the UPA.

31 | D E C E M B E R 2 0 1 5



The Congress-led UPA government had

above the GST, to safeguard their revenue. The UPA had suggested an independent dispute settlement mechanism, but that has been dropped in the new Bill. It would have enhanced confidence in the GST initiative.

Impact on Market Benchmark share indices dropped to their lowest closing levels in three months, declining for a second by the UPA. The Congress-led UPA government had

consecutive week on concerns over delay in passage

brought in the GST bill in 2011, but the BJP had

of the goods and services tax (GST), crumbling oil

opposed the legislation. Now, they have included key

prices, while prospects of a rate hike by the US Fed

provisions of the Bill, which will hurt the very purpose

also weighed on investor sentiment. Investors’

of the legislation.

sentiments were dampened over a possible delay in

The GST Bill is going to hit the middle class the hardest. The UPA had sought an effective tax rate of 16%-18%, which is in line with global average. The BJP government, however, wants this to be in the range of 22%-27%, which will make India the country with

the passage of the key GST Bill. Further, oil prices tumbled to their lowest since 2009 after the Organization of the Petroleum Exporting Countries (OPEC) decided to keep production high despite depressed demand.

the highest GST rate in the world. The poor would be

Conclusion

hit the hardest by this move. Besides, the NDA

If everything goes well, most likely Bill will be

government has proposed certain crucial changes. The

legislated by April 2016. Full implementation of the

Bill adds a provision which allows the GST Council to

GST Bill would expand India’s growth gross

make recommendations related to apportionment of

domestic product by 0..9-1.5 percentage points .By

IGST

removing the multiple centre and states taxes, the

The NDA government has proposed a 1% additional tax

GST can help in reducing taxation and filling costs

and the revenues of which will accrue to manufacturing

and expand business profitability and attracting

states.

investments

Apart from protecting his home state, Modi’s move does not have any merit as it would post additional burden on the states. In addition to this, the government has allowed the States to impose a 1% tax, over and1. above the GST, to safeguard their revenue. The UPA 32 | D E C Ean M Bindependent ER2015 had suggested dispute settlement

mechanism, but that has been dropped in the new Bill.

and

promoting

GDP

growth.

Simplification of tax norms can help in improving tax compliance and increasing tax re venues. This will also help in creating a unified national market.

GST BILL 2011

GST BILL 2014

The Bill defined GST as any tax on the supply of The Bill defines GST as any tax levied on the goods or services, except taxes on the supply of: (i) Petroleum crude;

supply of goods, or services, except taxes on the supply

of

alcoholic

liquor

for

human

consumption. (ii) High speed diesel; (iii) Motor spirit (petrol); (iv) Natural gas; (v) Aviation turbine fuel; and (vi) Alcoholic liquor for human consumption.

The Constitution imposed restrictions on states in This provision has been deleted by the Bill. taxation of goods that were declared by Parliament, by law, to be of special importance in inter -state trade or commerce.

The Bill made two changes:

These changes have been removed.

(i) It removed the goods listed under A. 366 from within its ambit; (related to tax on the sale or purchase of goods) (ii) It specifies that this provision was not to apply to a state law insofar as it imposed GST. It allowed states to tax entry of goods into a local The Bill deletes the provision which permits states area for use or sale only to the extent levied by a to tax entry of goods into a local area for use or Panchayat or Municipality

sale only to the extent levied by a Panchayat or Municipality.

33 | D E C E M B E R 2 0 1 5

VRIDDHI’S RESEARCH CORNER

STOCK REPORT- JAGARAN PRAKASHAN

-Vikas Verma

Fig 1: Showing Ad revenue growth bounces back 90bps YoY rise in print business.

Expansion Plans of the company Jagran Prakashan’s (JAGP) consolidated ad revenue (ex-Radio City) grew 9% YoY in Q2, largely driven by higher volumes across publications, its flagship publication, Dainik Jagran, recorded an improvement in ad yield.

Management of Jagran Prakashan (JAGP) at its Analyst meet suggests intent to consolidate/ focus on: (a) Print – scale up inorganic acquisitions (Naiduniya, Midday) by leveraging on its strong franchise, (b) Radio – building next growth engine

We expect Hindi print players like JAGP to benefit

with phase III expansion and (c) Digital – expand

from revival in national ad spends due to macro

reach with calibrated investments.

recovery (Growth in spending power, 7th Pay

Naiduniya: Jagran Prakashan Ltd (JPL), which

commission) in the medium term. Moreover, expansion

publishes the country’s largest read newspaper

in the Radio business will further boost the company’s

Dainik Jagran, has acquired the Madhya Pradesh-

medium-term growth.

based Hindi daily Nai Dunia for a value of Rs 150

Management has highlighted healthy pick-up in ad

crore.

revenue across auto, consumer durables and retail

500,000 copies a day, is printed in Gwalior, Indore,

sector; JAGP also benefitted from increased ad spend

Jabalpur, Bhopal (in Madhya Pradesh) and in Raipur

allocation by E-commerce players to regional print

and Bilaspur (in Chhattisgarh). It is among the 10

(negligible spend earlier). Circulation revenue grew 5%

most-widely read newspapers in the country,

YoY while other revenues (outdoor/event management)

according to the Indian Readership Survey,

declined ~6% YoY (down 12%QoQ); management

Acquiring Nai

remains focused to exit outdoor/events space over the

expansion for the Jagran group and will strengthen

next 1-2 years. Lower newsprint cost (down 4% YoY)

its presence in central India.

Nai Dunia, with a circulation of nearly

Dunia was

a

logical

market

and other cost control measures aided.

Acquisitions (of existing media brands) are the 34 | D E C E M B E R 2 0 1 5

right thing to do. There are a lot of synergies on marketing and branding efforts, and ultimately it

Acquisitions (of existing media brands) are the right thing to do. There are a lot of synergies on marketing and branding efforts, and ultimately it greatly benefits investors, “The Mid Day deal and now Nai Dunia puts Jagran on the map as an ambitious media brand.”

Radio ad market share to double over 3-5 years: Radio City to benefit: With phase III expansion, JAGP expects Radio ad share to double to ~8% (of aggregate Media ad spends) over 3-5 years. Given strong positioning of Radio City in existing/ healthy expansion in phase III cities, JAGP expects it to be the key beneficiary of such shift.

Fig: Showing returns over the past 2 years Acquisition of Radio City Radio coupled with print offers a powerful package to the advertisers where one can reach out to a larger audience base. Radio City operates 20 FM stations in seven states. It has presence in metros as Delhi, Mumbai, Bengaluru and Lucknow and has a listener base of 10.8 million. Music Broadcast had a revenue base of Rs 209.40 crore in FY 2014-15 with a growth of over 30 per cent from last year. The radio business has seen significant growth in the recent past and is expected to grow at more than 18% compounded

Fig: Showing Revenue & EBITDA growth

annual growth rate in the coming years. Most growth today is seen in regional channels and radio. The Jagran Group also runs Radio Mantra 91.9 FM, which has presence across cities like Agra, Bareilly, Gorakhpur, Hissar, Jalandhar, Karnal, Ranchi and Varanasi. The growth in the radio industry is expected to be led by two things: an explosion in listenership with the government planning to sell 839

Fig: Revenue Breakup

frequencies in 227 cities in its phase 3 radio expansion as well as its increasing importance as a tool for advertisers.

To conclude Jagran Prakashan is a Win-Win. “Happy Investing”.

35 | D E C E M B E R 2 0 1 5

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36 | D E C E M B E R 2 0 1 5