MICROFINANCE ISN’T SMALL BY SHILPAM DUBEY
The IBS times MALAYSIAN SWF SCANDAL
1MDB SCANDAL BY RADHIKA GUPTA
COVER STORY
THE GAME BETWEEN PROFITS AND CULTURE BY GAGAN KAPOOR
8th BRICS SUMMIT BY ANTRA BHARTI
ROSNEFT-ESSAR OIL DEAL
THE LARGEST DEBT REDUCTION BY AN INDIAN BUSINESS BY DEBANJAN PAUL
FinStreet, IBS Hyderabad
ISSUE NO. 195, NOVEMBER 2016
What’s Inside
2
INTELLIGENCE BEYOND SUCCESS LETTER FROM THE EDITOR
TEAM IBS TIMES ISHAN GUPTA (EDITOR-IN-CHIEF) ROHIT TILLU (MANAGING EDITOR) ABHINAV BANERJEE ANUPAMA KUMARSWAMI
CHESTHA KUMAR EYAMINI N HEMLATA HAJONG JATIN SHARMA PRATEEK PANDEY RANU SARUPRIA SANDHYA ADHAVAN SWARUPA ROY ANTRA BHARATI DEBANJAN PAUL DIXITA REDDY GAGAN KAPOOR JEET PC RADHIKA GUPTA SHILPAM DUBEY SHREYA RANI
Dear Readers, Greetings from Team FinStreet. 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. Team FinStreet is proud to present the 195th edition of The IBS Times. The biggest industrial conglomerate in India has become the talk of the town. The chairman and chairman emeritus are fighting to control the group. The complexity of the groups structure makes it more difficult. We cover it in our coverstory THE GAME BETWEEN PROFITS AND CULTURE. We also look at the menace caused by korean companies globally in our article HANJIN COLLAPSE and SAMSUNG GALAXY NOTE. We look at the Indian stories in our articles MICROFINANCE ISN’T SMALL, 8th BRICS SUMMIT and THE LARGEST DEBT REDUCTION BY AN INDIAN BUSINESS. For Sector research we‘ve published a report on Indian Oil and gas Industry to 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 Petronet LNG 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. Ishan Gupta Team FinStreet
SMRITI PATODIA SNEHA TIBREWAL SRUJANA NAIK UTSAV CHANGOIWALA
3
MALAYSIAN SOVERIGN SCANDAL 1 MALAYSIA DEVELOPMENT BERHAD SCANDAL
Malaysian Development Berhad is government strategic development company that is wholly owned by the government of Malaysia. The company was started in 2009 and was set up by Mr. Najib to turn Kuala Lumpur into a financial hub and boost the economy through strategic investments. This company was developed for the long term development of the country by promoting foreign direct investments and the company aimed at ensuring economic development for the state of Terengganu for the long term and sustainable while safeguarding the economic well-being of the people of Terengganu. The Malaysian development scandal of 2015 was a big political scandal that took place in Malaysia. Under this scandal in 2015 Malaysia‘s Prime Minister Mr. Najib Tun Razak was accused in 2015 for transferring nearly $ 700 million to his personal bank accounts. This scandal brought a very bad name to Prime Minister. Most of the Malaysians started demanding for his resignation. Many known personalities also went against him like former Prime Minister Tun Dr. Mahathir Mohamad as well as opposition leader, Anwar Ibrahim. They openly questioned the credentials of 1MDB and told Parliament that according to the records held by the commission of the company, the company is not having any address and no auditor. According to him there was a lack in transparency of 1MDB‘s accounts. During 2010 Malaysian Development Berhad gave clarification also that its accounts have been fully audited and signed by KPMG. Many big companies were in
-Radhika Gupta
involved in evaluation like Deloitte for analysis of the portfolio and Ernst and Young for providing the tax advice in the company. The company got a negative word of mouth in 2015 when it missed out payments of about $11bn that it owed to banks and bondholders. Multiple investigations took place into the 1MDB fund, including a special task force headed by the attorney general. The whole office was raided by the team and they took away some documents. Many foreign authorities also investigated the company. Even Singapore ordered Swiss bank BSI to shut down in the city-state for breaking its money-laundering laws in its dealings with 1MDB. Many criminal proceedings were opened by Swiss authorities related to 1MDB on the corruption by public foreign officials and dishonest management of public interests as well as money laundering. According to many global investigators more than $1bn entered Malaysian Prime Minister Najib Razak‘s personal bank accounts and most of it was from state investment fund of 1MDB. This scandal caused a huge political crisis in an important U.S. ally in Asia and threatens to upside down the years of one-party rule in the country. Mr. Najib completely denied wrong doing or taking money for personal gain. In his defense Mr. Najib said that he did not take any funds from the company and also said that "led the way in investigations into 1MDB" and would "fully co-operate with any lawful investigation". According to him former Prime Minister Mahathir Mohammad was using the scandal against him as a means of 4
of ―political sabotage‖. Mr. Najib‘s wife name is also being highlighted in the scandal. It has been revealed that some documents show up more than $6 million in her credit card charges in recent years but they are having no known source of income beyond her husband‘s salary. She covered this by saying that she was saving money since she was small. But the allegations that Mr. Najib received hundreds of millions of dollars transferred between 2009 and 2015 from 1Malaysia Development Bhd., a state investment fund he set up, are bringing renewed scrutiny of her. Through various bank transfer records the truth came out that large sums from 1MDB were wound up in the prime ministers personal accounts via some intermediaries. A civil lawsuit was filed by the U.S. Justice Department in July as they wanted the seizure of more than $1bn of assets from people connected to Mr. Najib but the lawsuit did not name Mr. Najib. The time when he denied his wrong doing , his attorney general, without releasing documentation said that the money was a legal political donation from Saudi Arabia, most of which he said was returned. The Saudis have given only vague statements. After all this scandal in 2015, Ms. Rosmah advised her husband to tough it out, according to a person who knows the family. A lot of pressure is there on Malaysian Prime Minister Najib Razak after calls he got for his resignation over allegations that $1bn was siphoned from Malaysia's state-owned 1MDB investment fund to purchase luxury properties, works of art and a business jet for his personal use. The assets purchased were from that money was works of art which valued at $137 million, including a painting made by Claude Monet. Many people who werf
called on Najib to step down were Malaysian opposition party leader Wan Azizah Wan Ismail, the wife of jailed opposition figures Anwar Ibrahim. They wanted an establishment of an independent commission to investigate the claims of corruption. But Najib did not hesitated at all. He said his government would give its full cooperation to an international investigation of this case. Najib completely tried to defend himself by saying that this case was a civil case not a criminal case and did not wanted to come to any conclusion until the whole process was done. He was serious about good governance. The people who supported him were Malaysia,s attorney general Mohamed Apandi. He issued a statement in support of Najib of not geeting any evidence that the funds were misappropriated from 1MDB by Mr. Najib and no criminal charges have been made against and individual. By many reports of the Monetary Authority of Singapore as well as the city state‘s attorney general‘s chambers and the commercial affairs department the conclusion drawn were that the investigation of funds found deficiencies at several major banks which includes undue delay in detecting and reporting suspicious transactions.
5
THE NEW BLOCK 8th BRICS SUMMIT
“BRICS signifies emergence of a new global balance, where power is diffused in a multipolar reality. This grouping increasingly plays a major role in shaping the global agenda.” BRICS brings together five major emerging economies of the world- Brazil, Russia, India, China, and South Africa. These countries comprise 43% of the world population, contributing towards 30% of the world GDP and 17% share in the world trade. And also consists of half of the world foreign exchange and gold reserve. A formal conference is organised annually which is attended by executive heads of the respective countries. The main agenda is the consultation on issues of mutual interest, through meetings of Leaders as well as of Ministers, however their agenda has extended over the years to cover topical global issues. Recently the 8th annual BRICS Summit was hosted by India on 15th -16th October in Benaulim, Goa, which was held under the dgef
-Antra Bharti
theme ―Building Responsive, Inclusive and Collective Solutions.‖ Besides the member countries, leaders from BIMSTECH (Bay of Bengal Initiative for Multi- Sectoral Technical and Economic Cooperation) countries were especially invited by the Prime Minister Narendra Modi. A series of events were held before the actual summit. The first BRICS film festival was organised from 2nd -6th September 2016, in New Delhi. It screened 4 films each day from the participating nations. A meeting was held on 16th September 2016 in Goa, inviting environment ministers of the nations. They agreed on memorandum of understanding and announced to set up a group to deal with environment related issues. Also a meeting of Agricultural ministers of BRICS nation was held on 23rd September in New Delhi. The first trade fair of the BRICS countries, was held at Pragati Maidan, New Delhi from 12th to 14th October. (This event was skipped by China). And, the first BRICS U-17 Football Cup was held in Goa from 5th to 15th October 2016. 6
Major takeaways from 8th summit Growing Trade Commitment: The trade between BRICS nation stood at US $250bn in 2015. These countries occupy a greater portion of trade volumes in the world, but intra-BRICS trade accounts for barely 5 percent of the global trade. In order to boost up the trade a target was set during the conference to double the trade volume to US $500bn in the next five years. Also the first trade fair took place this year, with the objective to strengthen mutual trade, establish key investment linkages, enhance business opportunities and promote ease of commerce in the intra-BRICS region. Its success demands for liberalization, a commitment which is losing appeal worldwide due to state policies of protectionism and populism. Environment: Protection of the environment and sustainable growth is one of the important goal for BRICS member states. At the summit, leaders adopted the declaration in which the need to strike a balance between economic development and environmental protection was emphasized. ―We welcome the early entry into force of the Paris Climate agreement, India was proud to ratify it on 2nd October this year,‖ Prime Minister Narendra Modi said. The bloc also welcomed the Paris agreement and encouraged the countries to implement it by providing technology, financial resources and capacity building assistance to support developing countries. World security: The summit was held at the time when India and Pakistan were in disputes, due to terrorist attacks near the town of Uri in the Indian state Jammu and Kashmir and China‘s move in US where it used the veto to avoid designating Masood Azhar as terrorist. PM Modi repeatedly raised the eefew
issues of terrorism, emphasising on the facts indirectly. He called the BRICS nations to take a stand and fight against terrorism collectively. ―We agreed that those who nurture, shelter, support and sponsor forces of violence and terror are as much a threat to us as terrorists themselves. We were unanimous in recognising the threat that terrorism, extremism and radicalisation presents,‖ he added. The BRICS nation strongly excoriate terrorism or any act related to it, in all its forms and manifestations, mainly the attacks against its member countries. It said there was no justification for acts of terror. The member countries agreed to combat international terrorism at the bilateral and international levels, by strengthening the cooperation. New Development Bank (NDB): The New Development Bank (formerly known as BRICS Development Bank) was established by the BRICS nation. During the summit, India signed a MoU (Memorandum of Understanding) on General Cooperation with the NDB through the BRICS Interbank Cooperation Mechanism. Also the first batch of loans were approved by the bank which has to be invested in renewable energy projects in BRICS countries. The President of the bank KV Kamath stated that the bank would lend up to US$ 2.5bn from next year (that‘s the double of its present lending capacity) including loans backing ‗green‘ projects and also would increase the staff strength, this would help in growth of the bank. India – Brazil Ties India and Brazil exchanged four memoranda of understanding (MoUs) during the summit, which included an Investment Cooperation and Facilitation Treaty; an MoU on Genetic Resources, Agriculture, Animal Husbandry, efw 7
Natural Resources and Fisheries; an MoU on Cattle Genomics and Assisted Reproductive Technologies and an MoU on Pharmaceutical Products Regulations. Also the Brazilian Ambassador to India, Tovara Da Silva Nunes highlighted the sectors which had potential for growth in their bilateral trade –chemicals, medicines, aerospace, processed food etc.
ended on an optimistic note with a call for stronger business, trade, and energy relationships between the nations.
India – Russia Ties India signed 16 agreements with Russia during the summit, across multiple sectors. Few of the major agreements were construction of gas pipeline from India to Russia, the procurement of S-400 Air defence system, construction of 1135 series of frigates in India, to set up joint ventures for manufacturing of helicopters, to cooperate on international information security, to develop smarts cities in Andhra Pradesh and Haryana, to collaborate in space technologies etc.
The summit also helped India to occupy a permanent seat in UNSC (UN Security Council) and also to push for its membership in NSG (Nuclear Suppliers Group). Decisions were taken to set up BRICS institute for economic research and analysis. Also it was called to set up a new Credit Rating Agency, however later it was felt that such institution require experts to study the proposal in greater details. Nevertheless, the 8th summit ewf 8
TELECOM WARS THE BATTLE OF SURVIVAL: RELIANCE JIO VS BHARTI AIRTEL
As per 2011, census 41% of India is less than 20 years and half of the population of the country is in the 20-59 age group. The allure of the digital and the social media has only just begun for Indian younger people trying to be more digital friendly. Money in hand of people is increasing, disposable income purchasing power of tier-II and tier-III cities (Upper Class) are increasing as reported by (ASSOCHAM) Associated Chambers of Commerce of India. According to the joint report by the internet, mobile association of India and consulting firms KPMG India has the largest internet user base in the world, though internet penetration is as low as 19% but the rural and cities outside the metro area are the next driving phase of internet growth in India. As mobile playing a pivotal role with access point of nearly 38% of active users. India‘s mobile user base of 236 million will expand to 314 million by 2016 and expectedly more than 500 million internet users by 2017.
Telecom Industry Telecom services are services availed by masses is an infrastructure service specially noted as an essential service under the act efewe
-Shreya Rani
1968 of the essential services maintenance acts. Current tax charged on telecom services is around is 15% but under GST regime as this industry is in an essential services so it is hopeful to be placed under merit rate slab of around 18% but this higher rate should be pegged along with the rate for essential goods or services and the undue hardship on operators and consumers should be considered. Telecom industry is the industry which is regulated in a very unique way of 22 mobile telecom circles out of which 12 circles are geographically spread in more than 3 states, and rest operating on 29 states and 7 union territories. Mobile operators offering lowest mobile call rates, free voice calls services, low cost data uses and facility, is all the symptom of healthy competition running in the market of telecom industry, where shares of different operators are changing significantly. This stiff market consolidation is dragging the operators to merger and acquisition, so that only competitive operators can survive in this era. An average consumer are consuming about 400 minutes of talk time a month generating revenue of around Rs140 to Rs160 per month at the rate of 35 to 40 paisa per minute. This is the signal of dropdown in voice revenue but will be offset by the appreciation in the data revenue due to increase in both the number of subscribers as well as data usage by the customer. The graph below shows the increase in data usage per customer but the rise is compensated by falling incremental revenue with realisation per MB falling. There is a doubt on wefwfewfe 9
compensation of declining voice revenue by rising data revenue. Cloud platform another virtualisation technology which is changing the way telecom operators run their business, it is helping them enhance their operation. Bolstered by software defined networking and network functions virtualisation which allows these operators with software rollout and support for the launch of new services. Fierce Cat Fight There is a clear demarcation line on the battlefield where we have Jio with reliance communication, AIRCEL and MTS on one side, Bharti Airtel, Vodafone and IDEA cellular on another side. Every development comes on the back of prolonged battle that was called intentionally by these 3 telecom operators, Airtel, Vodafone, and IDEA. The TRAI (Telecom Regulatory authority of India) slashed a hefty penalty of Rs 3050 Crore for Rs 50 crore per Telco per circle. These three operators out of healthy competition are dragged into legal cases and are found guilty for not giving adequate point of interconnection to the new entrants in the telecom industry Mukesh Ambani led Reliance Jio infocom limited and for nonwfeew
compliance of the license terms and conditions which appears to be with ulterior motive to curb competition and is an act of anti-consumer, which was disturbing the consumers. 1.) Bharti Airtel and Vodafone - Rs 1050 crore each at the rate of Rs 50 crore each of the 21 circle out of 22 circles of these two companies (Except Jammu and Kashmir). 2.) IDEA- Rs 950 crore at the rate of Rs 50 Crore each for 19 circles. Reliance came up in the market like no one else before and shattered all the barriers of high call cost and provide free incoming calls making mobile accessible for every Indian, and the man of the war, Mukesh Ambani is back again with his weapon of Reliance Jio to remove the stagnation in the telecom industry by cheapest data pack, lowest call cost, and free voice calls, made accessible by all and is the sign of future leadership but this has affected the other mobile operators immensely by dropping the balance sheets of all other telecom companies. Airtel showed a decline in its capital Q2 profits by 4.9%, IDEA by 19% and offers like one India for ever - no roaming, increasing demand of VOLTE enabled cell phones has we 10
indicated that there will be further deterioration in margins in the future. To prepare for this war chest Bharti Airtel showing their deep pockets has dragged its stake of 72% to 26% in Bharti Infratel so that it could raise fund upto Rs 33,000 crore seeing reliance Jio infocom limited investing around Rs 1 Trillion in its business until 2020. Reliance, Airtel has adopted different techniques to win over reliance Jio and so airtel is offering new offer every week like recently Bharti airtel launched a plan of 10GB of 4G data for Rs.259 which is almost similar to jio. The entry of jio has consolidated the market and to break this consolidation and to maintain its market share airtel is planning to slash its tariff rate slowly. Jio joins hand with bharti aritel and welcomes 7000 new point of interconnects increasing POI to 17000 but still RJIL has a complains of around 4.6 crore calls still failing between the two operators. Telecom Industry Future Outlook 1.) Telecom Operators will be looking for Future Opportunities of Growth in revenue as the number of devices requiring connectivity is growing day by day as consumers are getting addicted of connectivity and speed. 2.) Innovations like IOT (Internet of Things) application, mPayment and evolving new communication technology shows a glimpse of growth compiled with new challenges for telecom companies and their will be massive data consumption and will continue to grow with expansion of these innovations and huge streaming of content. 3.) Operator carriers need to continue their focus on reliable and affordable high quality of data and voice services.
11
TATA SON’S CHAIRMANSHIP THE GAME BETWEEN PROFITS AND CULTURE
The Tata Group startled everybody when on October 24, the Tata Sons board,drived out Cyrus Mistry as chairman. In any case, expelling Mistry from autonomous organizations of the Tata Group won't be simple; he is probably not going to go unobtrusively. A week ago, the autonomous executives of Indian Hotels openly bolstered Mistry's authority in front of the organization's executive meeting. Team Finstreet presents to you the as often as possible made inquiries as the Tata versus Cyrus Mistry dramatization unfurls. Why was Cyrus Mistry ousted? Without giving a particular reasons, Tata Sons just said developing trust shortfall and rehashed takeoffs from the way of working and ethos of the Tata organization was the explanation for the evacuation of Mistry. The board additionally said Ratan Tata would assume control as the between time administrator of Tata Sons and a council was shaped to chase for another executive in four months. The suggested and inside news states that Ishaat Hussain might be the new eerfwedcwe
-Gagan Kapoor
Chairman for TCS. The Trusts, which are led by Ratan Tata and control around 66% of the shareholding of Tata Sons, were additionally supposedly troubled that the execution of Tata Sons was progressively subject to just two organizations - Tata Consultancy Services and Jaguar Land Rover.
There are many stories attached with ousting of Cyrus Mistry of which I will be talking about the criticism he faced for selling Tata Steel's loss-making Europe unit and his plans regarding deal with other "legacy hotspots" such as Indian Hotels Co, Tata Teleservices and the $1,500 Nano car. Before he was expelled as administrator of Tata Sons, Cyrus Mistry gave the board a guide to support gainfulness, press out more cash for shareholders and more than twofold the combination's fairly estimated worth in 10 years, individuals acquainted with the arrangements told Reuters. In his Vision 2025 methodology record, ergfrege 12
which rushed to more than 30 pages, Mr Mistry wanted to target 10 for each penny yearly development and help the gathering's quality to $350bn - dramatically increasing Tata Sons' 66 for each penny stake to over $200bn. The methodology included rebuilding misfortune making organizations like Tata Steel's European unit; being less subject to crown gem Tata Consultancy Services (TCS); and piggy-support on India's monetary development by putting resources into shopper confronting units, money related administrations and computerized wanders. The procedure was sketched out to the Tata Sons load up - and to family patriarch Ratan Tata - three times in year and a half, with the last presentation months before Mr Mistry's ouster, the general population said. Goodbye has since assumed control as between time executive. The procedure, one of the general population said, was outlined with the 150-year-old association's speculation standards at the top of the priority list, with an attention on the long haul, entering spearheading businesses, and holding a controlling stake in endeavors. It pointed additionally to raise the arrival on capital utilized to 15 for each penny, and more than twofold the profit payout proportion to up to 25 for each penny by 2025. In a wounding, open column since Mr Mistry was rejected as director a month ago, some have censured his absence of a long haul anticipate the gathering. He remains director of some gathering organizations including Tata Steel and Tata Motors.
A representative for Tata Sons said "a 5-year plan was exhibited in September, and was not discovered reasonable". Mr Mistry's office did not react to a demand for input. Mr Mistry was additionally reprimanded by some for his choice to offer what they felt were Tata family gems, for example, Tata Steel's misfortune making Europe unit. In spite of an outside notoriety as a heartless specialist concentrated on benefit, one of the sources said he put in over two years attempting to settle such legacy issues, including going to the Welsh steelworks at Port Talbot to converse with union laborers. Mr Mistry started merger chats with Germany's ThyssenKrupp with an end goal to rescue the steel business, despite the fact that it confronted high UK vitality costs, charges and an exorbitant benefits plot. "On the off chance that Tata Steel can converge with ThyssenKrupp it will have the capacity to make a hearty new organization," the individual said, taking note of chats with the German firm have impeded in the midst of Tata's administration change. Mr Mistry likewise looked to manage other "legacy hotspots, for example, Indian Hotels Co, Tata Teleservices and the $1,500 Nano auto. "The system was centered around diminishing the reliance on more repeating organizations, and concentrating more on more steady, buyer driven organizations," said one more of the sources. It look bad to put more in the Nano as the auto would not have possessed the capacity to meet stricter wellbeing rules because of come into constrain in two years' opportunity, the individual noted. 13
One development region that Mr Mistry wanted to grow further was budgetary administrations, for example, a protection wander, with an arranged yearly development rate of 20 for each penny. Another concentration region was Tata Global Beverages. What can happen next? Could Mistry be evacuated as executive of individual organizations? Expelling Mistry from free organizations won't be simple; Mistry is additionally farfetched to go unobtrusively. A week ago, the autonomous executives of Indian Hotels freely upheld Mistry's administration in front of the organization's executive meeting. The free executives, including Deepak Parekh, Keki Dadiseth, Ireena Vittal, Gautam Banerjee and Vibha Paul Rishi said, considering board appraisals and execution assessment did throughout the years, the autonomous chiefs were consistently communicating their full trust in the director, Cyrus Mistry. This could reinforce Mistry's certainty and he may discover bolster from autonomous chiefs of other gathering organizations as well. Vital executive gatherings of Tata Steel and Tata Motors are booked throughout the following few days and their procedures will be observed nearly. On the off chance that Tatas intend to look for shareholder bolster for the administration change, the matter will must be taken up in a different general meeting, for which a unique notice should be issued giving purposes behind the move. It will likewise allow the chief worried to react. Such a meeting may likewise acquire administration choices taken e
the past under more examination thus lawful specialists say this could be last choice for Tatas. With a long drawn fight in court, the Tatas have as of now counseled senior backers like Harish Salve and Abhishek Manu Singhvi. Mistry too has apparently designated beat attorneys like Janak Dwarkadas to battle his case. What is the role of Tata Sons here? Tata Sons is basically the holding organization of the Tata Group, which is a combination of more than 100 organizations extending from salt to programming, cars and flight with joined incomes in abundance of $100bn. Ordinarily, the director of Tata Sons is likewise the executive of key gathering organizations. In any case, for this situation, while Ratan Tata was named the break executive of Tata Sons, Mistry still remains the administrator of different gathering organizations. What powers are with the Tata Trusts? The Tata organizers gave the greater part of their own riches to the different trusts they made for conveying altruistic exercises. These trusts, which incorporate Sir Dorabji Tata Trust, Sir Ratan Tata Trust and Navajbai Ratan Tata Trust, all things considered control around 66% of Tata Sons, and are in this manner gigantically effective. Just before Mistry was named executive, Tata Trusts was given unique forces to assign, favor and evacuate director of Tata Sons. How the regulators intervene?
and
government
Not long after Mistry was sacked and the erfrwe 14
previous administrator composed the scorching letter to the board, stock trades sent notification to different Tata Group organizations looking for elucidation. Sebi authorities too have demonstrated that the market controller is observing each improvement nearly and move will be made if any corporate administration issues rise. The back service too has asked monetary foundations including the Life Insurance Corp of India and banks to keep a watch on advancements to secure speculators' advantage. LIC alone has a presentation of about Rs 37,500 crore to different Tata amass organizations. What is the response of the mighty market and investors?
What to conclude from it? The new executive would need to manage various issues that stay uncertain. For one, the gathering level obligation stays high, and the Tata Steel UK and Tata DoCoMo issues stay to be dealt with. Making alternate organizations in the gathering beneficial will be an extreme assignment given the outer environment (however the residential operations of the steel business are profiting). There are likewise the new organizations that should be subsidized. In the interim, Ratan Tata is back and maybe he will have tidied up a few of these issues before the following executive comes in.
Since Mistry's ouster, shares of a few recorded organizations of Tata Group have taken a thump. For example, Tata Global Beverages and Indian Hotels have shed close to 13% and 17% separately. Numerous others including Tata Motors, Tata Power, Tata Communications, TCS and Tata Steel have declined 4-10%. Outside institutional financial specialists and common store houses hold sizeable stakes in a large number of these organizations. Stressed over their speculations getting disintegrated further, numerous institutional financial specialists are probably going to approach the sheets of individual organizations looking for more clarity on the guide ahead, in the midst of proceeded with instability at the top, as per market sources. As indicated by a news report, a gathering of FIIs has effectively kept in touch with the Tata Motors board worried over the likelihood of Tata Sons being offered access to key data before different financial specialists. 15
ESSAR OIL-ROSNEFT DEAL THE LARGEST DEBT REDUCTION BY AN INDIAN BUSINESS
Russia‘s state-owned oil giant Rosneft, which is the world‘s largest petroleum company with revenues in excess of $ 80bn, joined hands with international community trader Trafigura based in Netherlands, and a private Russian investment group United Capital Partners to complete the largest ever inbound FDI deal in India of whopping $ 13bn. The deal was announced in October 2016 in the 8th BRICS summit in Goa in the presence of Honourable Prime Minister Narendra Modi and Russian President Vladimir Putin. Essar oil is the India‘s second largest firm in oil industry.
It is the largest oil acquisition in the commodity trader‘s history. Rosneft bought 49% stake in Essar oil‘s refinery, port and pumps while Russian investment group United Capital Partners and Dutch based Trafigura Group divided 49% equally. The remaining 2% will be held by minority shareholders after delisting. An amount of $2bn will be paid for the acquisition of Vadinar Port which has excellent storage and import/export facility. The Essar Group has been under pressure from its lenders to reduce its debt burden. The deal will help the group to reduce its debt burden by Rs 75,000 crore as stated by Essar director Prashant Ruia.
-Debanjan Paul
Key details of the deal are as follows: • Largest foreign acquisition in India • Single largest foreign investment in the Indian refining sector • Russia‘s biggest outbound or foreign acquisition deal • Rosneft thus become one of the 4 international players in Indian fuel retailing market- Royal Dutch, Shell, British Petroleum Impact on Rosneft and Trafigura? It‘s a win-win for Rosneft. This deal gives Rosneft entry into one of the most promising and fast growing world markets. It gives unique opportunities for synergies with it existing assets. According to Vandana Hari, energy sector analyst, the deal is a feather in the cap of Rosneft and Trafigura. The deal will give them a supreme control of the entire downstream business of Essar Oil, and getting a relatively new and sophisticated refinery and retail network, which will play a critical role in serving a fast-growing captive market at home. It will also help Rosneft to reduce its distribution cost to its suppliers in this region and will also get an assured supplier of its crude and a large market for its product. This deal will give Rosneft a deep foothold in the market and is expected to overtake Japan as the third largest oil user and the fastest growing crude consumer through 2040. Following the acquisition, Rosneft can hope to take on BP and Shell, which are already present in the country. How will it impact Essar? 16
The Essar group is an Indian conglomerate founded by Shashi Ruia and Ravi Ruia in 1969 and is headquartered in Mumbai. It has its presence in oil and gas, steel, electricity, shipping, Information technology and real estate industry.
that the Indian companies lost out on a golden opportunity, as the country is going to allow some foreign companies to profit from its downstream oil industry growth story. This opportunity could have been exploited by the Indian refiners.
Although it has a strategic position in the global oil market, it has been under constant pressure from its lenders to reduce its debt burden. As per reports, it has loan of Rs 1.2 lakh crore debt. The deal will help the group to reduce its burden by Rs 75,000 crore. Apart from this, the group‘s assets will reduce by 30 percent with this deal and revenue by $ 10bn to $ 17bn. The group can now focus more on its other businesses. Why it is good news for Indian banks? Banks have a mandate to clean up their balance sheets by March 2017 and have been pushing debt-laden companies to sell assets to repay loans. Essar being one of the debt laden companies, this deal will be a significant step in the process of deleveraging the balance sheets of Indian corporates. Since it is an allcash deal they are highly likely to settle the lenders. Rosneft deal is an eye-catching sign of the push to deal with deep-seated problems in Indian banking. Thus, it seems that the Rosneft-Essar deal is a bonus for the bankers and they must make the most of it. Did Indian Inc lose out? The deal between Essar and Rosneft definitely means that the Indian energy sector is very attractive for foreign investors. Although the deal was a complex one, especially when a company laden with debt, are under pressure to sell its assets, with a bigger deal in mind. However, it also means w
Conclusion After striking the deal to sell its oil refinery to Russia‘s Rosneft for $ 13bn, it has become the largest debt reduction/deleveraging exercise in corporate India. This deal will supposedly strengthen the Indo-Russia relationship as well. Also, we are finally seeing some movement in the resolution of the Indian banking system‘s bad debts problem. With big deleveraging deals now happening, it will set a stage for the banks to be in a position to lend when credit demand recovers. And when they lend the next time, it should be accompanied by greater accountability — on their and their borrowers‘ part. It is good to see Essar responding positively to pressure, not every borrower respond in a similar way.
17
BIGGEST SHIPPING COLLAPSE HANJIN COLLAPSE
Hanjin Shipping filed for bankruptcy protection August 31, 2016, a day after its creditors, led by a state-run bank, refused to prop it up, after months of trying to raise liquidity and restructure its debt, triggering a mad scramble by shippers to locate and gain control of their containers. Some Hanjin vessels were seized by authorities and creditors, with others refused entry to ports and to work with Hanjin ships for fear that they would not be compensated. Hanjin Shipping's collapse is by far the largest container shipping bankruptcy in history and the consequences will continue to reverberate throughout international supply chains and the transportation sector. Hanjin Shipping is the world‘s seventh-largest container shipping company worldwide and number one in Korea, with a fleet of 98 container vessels. Founded in South Korea in 1949, Hanjin is present in 60 countries with approximately 6,000 employees. Hanjin will join THE Alliance when that vessel-sharing agreement enters force in 2017. WHAT DOES THIS MEAN FOR GLOBAL TRADE? Hanjin represents nearly 8% of the transPacific trade volume for the US market and the bankruptcy has a "a ripple effect throughout the global supply chain" that caused significant harm to both consumers and the U.S. economy. The bankruptcy of the Hanjin shipping line has thrown ports and retailers around the world into confusion, with giant container fwe
-Dixita Reddy
ships marooned and merchants (specially in US) worrying whether tons of goods will reach their shelves. Short-term impact on the global supply chain will depend on the time needed to unload Hanjin ships. In the meantime, customers will have to seek alternatives while rolling out their contingency plans. Competitors will take on the additional cargo – but at a price. Hyundai Merchant Marine, for example, will deploy at least 13 of its ships to two routes once exclusively serviced by Hanjin, while the South Korean government plans to reach out to overseas carriers for help. Mid-term, the shipping industry saw healthy rates and revenues coming back. Prices surged upwards – by up to 50% for a 40-foot container from China to the US. The surge was partly due to the then forthcoming China National Day on 1 October, as well as the number of vessels made idle to reduce overcapacity. However, the Korea Maritime Institute estimated that, in the near term, shipping rates will rise – by 27% between Busan, South Korea‘s largest port and the US, and by 47% between Busan and Europe. In light of these increasing risks and their impact on the global economy, there are two likely outcomes. First, the market and existing legal mechanisms will be left to clean up the failure. Alternatively, the South Korean government will find a way to support its struggling shipping industry. For decades, South Korea‘s shipping lines were engines of the nation‘s export-driven fedw 18
economy. Their role going forward might depend on the assessment of their ability to significantly reduce costs and become competitive in the global market. PROGRESS SO FAR The Port of Long Beach and Total Terminals International LLC—which runs port terminals for Hanjin, including its Southern California operation in Long Beach—have arranged for a container ship to remove 4,300 containers that have been sitting in container yards and warehouse lots since the bankruptcy filing. Disposal of assets under court order. On November 10th, Hanjin Shipping Co. has drawn two final bids among the five separate bids , including one from Hyundai Merchant Marine Co., for the assets of its Asia-U.S. route and its stake in a California terminal, as the beleaguered company is broken up as part of a restructuring plan. In their proposals, both companies also expressed their intention to purchase Hanjin‘s 54% stake in Total Terminals International LLC, which runs Long Beach Terminal in California. Hyundai Merchant, which is owned by state-owned Korea Development Bank, is trying to expand its fleet to compete with bigger rivals such as Denmark‘s Maersk Line and Geneva-based Mediterranean Shipping Co. on the route, one of Asia‘s main links to Western markets. Hanjin, once the world‘s seventh-largest container operator by capacity, is under court order to cut its workforce, sell its own ships and return chartered ships to their owners. A Hanjin spokeswoman said it plans to fire wef
almost all of its 700 seafarers by the end of the year. The Korean company, whose debt totals around 6.03 trillion won ($5.3bn), also plans to reduce its land-based workforce of 700 by nearly 60%. Hanjin said last month that it would close its 10 European offices, including its regional headquarters in Germany, fanning speculation that Korea‘s once No. 1 shipper will be liquidated or forced to become a much smaller regional operator after the sale of major assets. The sale process may herald the beginning of the end of Hanjin, which filed for receivership in late August, disrupting supply chains around the world. ―When a large carrier suddenly ceases operations and removes approximately 20,000 to 25,000 containers per week of capacity from the global supply, there is a sudden shortage of supply,‖ The Hanjin bankruptcy is just the first major disruption for an industry that is in trouble and expected to lose at least $6bn this year. The seeds of this crisis were sown a decade ago, when shipping companies went on a buying spree, ordering bigger fuelefficient ships as oil prices were climbing. Ship builders, port operators and container lines were all eager to receive the bounty of China‘s ravenous demand for everything from iron ore to designer handbags. Today, the global economy is sluggish, and the slowdown in China coupled with recessions in Brazil and Russia are pushing global growth down. According to industry analysts, the only way to fix the oversupply of ships is with an unprecedented culling of the fleet that would scrap older vessels. But that could take years. 19
CHINEESE GOODS DEBATE IS MAKE IN INDIA – THE PANACEA FOR MADE-IN-CHINA?
-Srujana Naik
Modi‘s Make in India campaign has been widely accepted by the people of India, in fact he is already acting upon it by launching initiatives that will focus on building manufacturing industries , creating digital network. The vision is to make India a global hub for manufacturing of goods ranging from small vehicles to big robots, satellites to submarines and so on so forth.
Pharmacy industry has been hit by Chinese imports. Telecom products topped the import chart list with over $ 1450 million worth of imports with a growth rate of 42 per cent. China export in electrical, electronic equipment stands at 329bn $ as compared to India with meagre $6bn. Sensitive items like Pharmaceuticals reported a jump of 60 per cent.
So with Make in India slogan making buzz all around one can also here saying boycott Chinese products in India and it has been the recent trending story covering newspapers to social media. And ban on Chinese products adds one more feather to the making of Make in India campaign successful. In the world market India and China have been the emerging economies and have made a reasonable impact in trade within and outside their nations. But Chinese products have been successful in seeking Indian consumer‘s attention because of its cheap imports and have found a way in to the Indian shops. The reasonable rates infact, I must say the products are available at cheap price and also more choices which a normal Indian middle and lower class family can afford.
Fast growing import category is tiles and refractory, which grew at 292 percent, machinery imports grew at 146 percent, cables and wires at 124 percent and tyres imports were at 101 per cent. Import trade statistics is alarming for India‘s domestic manufacturing industry, which is fighting a losing battle with cheap Chinese imports flooding Indian market.
Though the Chinese products are cheaper when compared to Indian products, they also have a immediate expiry date i.e. short life span leaving no notable benefit. The Chinese products are 10-70% less in prices compared to Indian items. Most of the items have not been subjected to quality control. Major Indian industries that have been affected by Chinese imports are Telecom and we
Micro, small and medium enterprises face a major threat from the Chinese market because of low price products people usually prefer to buy those products instead of Indian products. Also the electronics market is full with Chinese products considering the example of Smart Phones there are Xiome, Gionee OnePlus etc And all the IC‘s are Made-in-China products. Since there is no manufacturing base in India, so we are left with no option to buy it from other countries and US variants are costlier so China is the only best option that can be considered. But apart from Chinese imports to India, there are Indian exports to China and that will be affected if we ban Chinese products. The items that are exported to China include Automobiles, medicine and textiles. 20
And if India boycotts Chinese goods, it will impact nation‘s economy and International market value. China till date is India‘s largest Trade Market.
partnership between the two countries. Major mechanisms have been established for enriching and strengthening the economic cooperation between India and China. Besides the India-China Joint Economic Group on Economic Relations and Trade, Science and Technology (JEG) and the IndiaChina Strategic and Economic Dialogue (SED), a Financial Dialogue has also been taking place between the two countries since 2006.
Cultural Relations: Continuity
India - China Bilateral Trade
The
Tradition
of
India - China Cultural Exchanges Indian and China are not just mere societies but they are civilizations. They started exchanging their cultural elements more than 2,000 years ago and shared their cultural traits and is continuing this tradition even today. India-China Political Relations On April 1st, 1950 India became the first nonsocialist bloc country to setup diplomatic relations with People‘s Republic China. In 1962 India-China border conflict ad weakened the bond, but Prime Minister Rajiv Gandhi‘s visit in 1988 made improvement in bilateral relations. Agreement on the Maintenance of Peace and Tranquillity was signed between India-China in 1993 along the Line of Actual Control (LAC) along the border areas and reflected the growing stability and substance in bilateral ties India-china Economic Relations Economic relations form a major part of the strategic and cooperative partnership between two nations. They constitute an important element of the strategic and cooperative fweecs
India-China bilateral trade for 2014 stood at $70bn resulting in a trade deficit of $46bn. In 2011, bilateral trade stood at $69bn. India‘s trade deficit for India for year 2011 stood at $36bn. China‘s trade with India and the world for year 2012 reflected the trend of slowdown, marked by lower consumption and slower growth in trade volumes. India-China total trade in goods for 2012 declined to $67bn. India‘s exports to China for 2012 reached $15bn whereas imports touched a total of $52bn. Trade deficit for India in 2012 stood at $37bn. India-China bilateral trade for 2013 stood at $66bn resulting in a trade deficit of $37bn. From the above statistics and observations it can be said that India just cannot boycott Chinese products as it is the member of World Trade organization. Infact by this decision India can lose more than it is now, but all said and done we definitely need to take bold step now and stand for Make in India instead of Made in China. We need to stitch what we wear right? Future still remains unseen whether India will be the manufacturing hub or will be occupied by Made-in-China.
21
MICROFINANCE IN INDIA MICROFINANCE ISN’T SMALL
“Inequality of outcome can only be accepted when there is an equality of opportunity” It‘s characteristic of the free market capitalism to cause inequality in an economy, and since most economies are free markets today, inequality has become a commonplace. The idea that ‗Unequal is Fair‘ - meaning ‗getting what you deserve‘ - is acceptable as when as it‘s not leading to inequality of opportunities. One of those biggest gaps lie in the financial sector. In a country like India with 22% population undeniably below the poverty line, this gap becomes significantly high. It‘s the microfinance institutions that pitch in here to reduce this gap. Microfinance means giving small amount of loans to people who don‘t have access to formal banks. These ‗left-out‘ people include low-income, unemployed and underprivileged sections of the society. The purpose of microfinance is to provide them the opportunity to at least get a financial threshold. Some important characteristics of microfinance are:• They operate in areas where formal banks usually don‘t operate. Though, a lot of them are operating in urban areas as well • MFIs offer small loans (for example for agriculture, education etc.), life insurance and other financial services. In India, they are currently not allowed to accept demand deposits • They operate through models like Grameen Bank model, Self-Help Groups, joint liability group model or franchisee model
-Shilpam Dubey
• Self-Help Groups (SHG) is a small group of people usually 10-20, who come together to solve common problem through mutual help. They create a common fund with a bank where they keep their small savings Success Stories of some MFIs
Bharat Financial Inclusion (formerly SKS Microfinance) (15% market share in 14-15) SKS Microfinance Private Limited was incorporated in September 22, 2003 under the Companies Act, 1956. In 2005, it got registered as an NBFC and also acquired SKS Society which was an NGO and engaged in microfinance. It is one of the largest MFIs in India in terms of number of borrowers, number of branches and total value of loans outstanding. SKS Microfinance is the fastest growing financial organization in the world. In 2014-15 CRISIL graded SKS 4/5 stating that the company promises a healthy future owing to its sound risk management practices and focus on core-business of micro-lending. Some of its major products are Income Generating Loans, Life Insurance Loans, Emergency Loans, Productivity Loans, and Loan Cover Insurance. SKS Finance has played a significant role in women empowerment by elevating financial status of women in rural areas. Ujjivan (10% market share in 14-15) Ujiivan has bagged huge achievements in covering millions of life through inclusive insurance, increasing its awareness in rural we 22
areas, particularly among women. It has also worked extensively in educating the rural India through its Group Training and Financial Literacy program. Ujjivan focuses on credit, individual lending, group loan through joint liability group (JLG) model and it serves urban, semi urban and rural segments. It is the recipient of the prestigious The Platinum Award for inclusive insurance which is highest in this category. In 2011, Ujjivan was awarded as the "Microfinance organization for the year". It is also stands 3rd rank as the 'Best Place to Work' in India.
Bandhan Bank (34% market share) It started in 2001 as an MFI, Bandhan Financial Services Limited, and in 2014 received license by RBI to operate as a bank. Its primary objective is to work for social upliftment of women through its microfinance services. In just 15 years, it has spread across on 22 states and Union Territories with over 700 branches and 9 million customer base and ranks 2nd in terms of geographical spread after Ujjivan and 1st in terms of number of branches. IDFC’s ‘micro’ stepIDFC bank is aiming to extend its credit to erge
the poor sections of the society. It has acquired 10% stake in ASA International India Microfinance and 100% in Tamil Nadubased Grama Vidiyal Microfinance. Its strategy is to become a mass retail bank and these steps will provide access to the rural consumer base. Inclusiveness Currently, MFIs are functioning in almost isolation with the mainstream financial institutions. Efforts are being made to link the MFI sector with equity and debt markets. RBI has always taken necessary steps to provide boost to the sector. Under priority sector lending, banks are required to provide a portion of their lending to low income groups. RBI doesn‘t permit MFIs to raise deposits for the obvious reason that it may pose huge threat to poor peoples‘ money. Though all these stories are great, yet around 300 million people in the country still don‘t have access to formal financial services. Around 70% of banking assets is held by nationalized banks, of which 45 % makes only 300 corporates. It means a large chunk of credit is consumed by the corporates. Over the last 3 years, there has been a staggering growth in MFIs. They have taken a good share of banks‘ lending. But, there are a lot of challenges that MFIs face. There are large number of small players and very few large players and more banks are entering into MFI sector. Also, there is a growing trend of MFIs increasing their urban customer base, which means less focus to small customers in villages. Nevertheless, micro finance institutions contribute abundantly to the financial inclusion of the country.
23
SAMSUNG GALAXY NOTE THE GOOSE THAT LAID GOLDEN EGGS
Samsung – The South Korean company was ranked number one in the smartphone market in the FY 2015, when they decided to prepone the launch retail sale of the Galaxy Note 7 by ten days to early August 19th, 2016. (exactly 362 days before the Note 4 was launched) The move was a strategically made to make sure it clear air for the new variant in the Note series before the iPhone 7 family would arrive. Before this, Samsung had made $49 billion from the Note series and it was probably the most sorted product segment Samsung had in the smartphone umbrella. Samsung wanted to use this time space to brand Note 7 as technically advanced, and show that Samsung was at its innovative best – the dual curved edges showcasing its design skills, the iris recognition security hardware that enhanced the appeal of the device to the enterprise market and the return of micro SD support to show that the company was listening to its established and vocal fan base. This was a strategy that they have been using before. With the early launch, Samsung wanted to stack up the key moments of the Note 7′s early against Apple to boost sales like never before, a rivalry that showcased the premium smartphone segment over the due course of 4 years. The launch and reveal, the first reviews in the media, and the initial sales and public reaction on social media would be in the Note 7′s favour ahead of Apple‘s launch of the iPhone 7 – which was widely trailed to be incremental changes to the hardware along with the lightning-rod controversy around the removal of the headphone jack. Next to that, the Note 7 would have been a great competitor but just as the plan was about to we
-Jeet PC
see daylight, it was shot down in flames. On October 5th, 2016 Southwest Airlines flight 994 from Louisville to Baltimore was evacuated while still at the gate because of a smoking Samsung Galaxy Note 7 smartphone. All passengers and crew exited the plane via the main cabin door and no injuries were reported as mentioned by the Southwest Airlines spokesperson, had that been any other airlines, the passenger would have been branded as a terrorist by then, but Southwest Airlines is known for its great hospitality and then ensured everyone was safe. Following the course of these global events even Indian Airlines banned note 7 on their flights. One month later several incidents of the Samsung galaxy note 7 were reported. A woman in Taiwan noticed that her phone was emitting smoke in her pocket on October 7, a 13-year-old girl in Minnesota suffered a burn on October 7 when her phone became extremely hot under her thumb and a Virginia man reported that his Note 7 caught fire on his nightstand and filled his room with smoke on October 9 were a few of the 35 incident reported in US. The reason behind this fires has something to do with science. Today most phones use lithium ion battery packs for their power, and it just so happens that the liquid swimming around inside most lithium ion batteries is highly flammable. If the battery short-circuits by puncturing the incredibly thin sheet of plastic separating the positive and negative sides of the battery the puncture point becomes the path of least resistance for ewrerg 24
electricity to flow. It heats up the flammable liquid electrolyte at that spot. And if the liquid heats up quickly enough, the battery can explode. Following this line of incidents, Samsung started giving replacements and refunds for those devices. The crisis though began in late August, but reached a head on September 15, when the CPSC, the federal agency charged with overseeing product reports and alerts, issued a formal recall of the more than 1 million Note 7 devices shipped to consumers in the U.S. Samsung had begun issuing replacement phones but even those had issues. The Korean giant lost $26 billion of its market value since it announced the Galaxy Note 7 recall, Samsung dropped 6.9 percent between the Korean Exchange's close on Friday (September 9th) and Monday, and its stock was priced at a bit above $1,300. Since then Samsung has recalled 1 million of the 2.5 million that devices that were manufactured. (Since the recall was first announced, the number of explosive Note 7s has nearly quadrupled.) This might have alarmed investors and made them question Samsung's future in the mobile business. Samsung was expected to maintain its highend smartphone sales in the second half of 2016 with the Note 7's release and it probably would have been successful as Note 7 was branded to be "best phone Samsung has ever made." However, the corporation had to issue make a decision following the mentioned flurry of events. The estimated loss represents less than 5% of Samsung‘s projected income of $20.6 billion for this year. Samsung‘s affiliated battery maker Samsung SDI is expected to bear a part of that cost. Samsung SDI supplied 70% of err
the batteries, with Chinese battery maker Amperex making the remaining. Samsung is supposed to lose another 3.1 billion over the course of the next two fiscal quarters, following a significant reduction in its Q3 earnings guidance. The company already allocated the expected direct cost from the discontinuation of sales in its 3rd quarter earnings guidance revision, but expects the drop in revenue from the discontinued sales to continue to have a negative impact on operating profit for the next two quarters The negative impact is estimated in the mid-2 trillion won range for the fourth quarter of 2016 and at approximately 1 trillion won for the first quarter of 2017.
There‘s this famous ‗Aesop Fable‘ Where in a farmer found a goose that laid one golden egg every day and became rich. One day he became greedy and killed the hen thinking there must be a storehouse of golden eggs. Samsung is the man in this story and Note Series – the Goose that laid golden eggs. Note series brought lot of profits to the company and took it to great heights. Minimal expenditure on R&D and a narrowed timeframe for product development led to the cruel end of a significant brand.
25
INDUSTRY ANALYSIS OIL AND GAS INDUSTRY
Each time I hear about oil and gas industry the few things that comes to my mind is Saudi Arabia and their oil wells , the second thing being the price of petrol. This industry has such a volatile effect on everything as any minute change affects all consumable goods and services directly or indirectly. India is one of largest importer of crude oil and an exporter of refined petroleum products. Here firstly crude oil is imported mainly from Middle-East Asia and then the oil is send to the oil refineries where the crude oil is processed and refined into more useful products such as petroleum naphtha, gasoline, diesel fuel, asphalt base, heating oil , kerosene and liquefied petroleum gas. We can see that all these outputs of refined oils are widely used for domestic and commercial purpose because of which there is a need of sustainable development as the demand for energy is being increasing every year but oil being an exhaustible resource , its overexploitation will leave us with nothing for the generation to come. A preview of Oil and Gas industry in India is as follows:
-Utsav Changoiwala
a) Second largest refiner in Asia:- By 2017, the oil refining capacity is expected to reach more than 310 mt from 232 mt. b) Third largest consumer and importer of energy, LNG, oil and petroleum products:- It is also said that the demand shall increase two folds by 2035 from 700 mt to 1,516 mt.
c) India has invested in making a good export quality refineries in various parts of the country to make it a net exporter. d) The current domestic oil output is set to grow by 1 million barrels per day. e) This industry is dominated by state owned companies and there is very few private companies. Indian oil Corporation Limited, Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited, ONGC are few key state owned companies. Cairn Energy India Private Limited, Shell, BP and BG Group are the key private sector companies. Reliance Industries Limited is the only public listed company.
26
Opportunities and Advantages for India: i. India as it is a developing country with a very high growth rate it has a very high demand for oil, gas and energy. This demand has been growing year after year. Currently it accounts to 37% of total energy consumption.
capital intensive industry because of which not everyone can afford to enter into this sector. The stake becomes too high for any person to take.
ii. The University Of Petroleum and Energy Studies in Dehradun, Uttarakhand is Asia's first and only energy university.
Substitute Products: Alternate source of energy like solar, wind ,hydro etc. is available but have not been tapped properly so for time being this sector has very little pressure from its substitute goods but in future there are chances for things to change.
iii. The Indian Government has allowed 100% Foreign Direct Investment (FDI) in upstream and private sector refining projects and for public sector refining projects it has been raised to 49% without disinvestment.
Bargaining Power Of Suppliers: As there are few other players in the market and delay in paying off the subsidies amount to the suppliers makes it hard to negotiate with suppliers at times.
iv. Government has enacted various policies such as the New Exploration Licensing Policy (NELP) and Coal Bed Methane(CBM) policy for encouraging investments. Companies which already has the licenses for petroleum and mining are allowed to apply for shale oil and gas licenses.
Bargaining Power Of Customers: Here the customers have very less or no power to negotiate as the customers are price taker and not price maker.
Competitive Rivalry: Competition in this sector is very low as there are only 2-3 industries working in Upstream, Midstream and Downstream segments. Threat Of New Entrants: This is a very ergrer
Future Developments: Companies are looking into newer bases in different countries to increase their global foot prints, like the ONGC Videsh Limited (OVL) has acquired a significant area in Africa. State Government has also come up with another strategy where in they update their existing refineries for more efficient production. They have also thought of various strategic tie ups with various other foreign companies for their technical know-how and knowledge base. Other Oil companies are thinking of diversifying their operation by a method of Vertical Integration where in the companies are planning to venture into other sectors in the same industry so as to make their production more cost effective. Companies have also started to invest in shale gas reserves and other future energies such as e 27
wind, solar and hydro which will keep them ready for future. More investments are also put into R&D to focus on gasification technology and bio energy. Due to recent discoveries there are few smaller state owned refineries coming up in Barmer basin and Krishna-Godavari basin.
and its emissions mainly carbon monoxide which is the root cause for global warming. Future being so uncertain and dynamic nobody can actually say about the life of this industry but still it something to put your thoughts on, isn't it?
Sustainable Development coming into play and people looking for other efficient and less harmful sources of energy for the future which has not been tapped yet and even though there are many place where exploration is yet to happen the long term future for this industry looks hazy. The main issue with this industry is that it is exhaustible we 28
VRIDDHI RESEARCH REPORT PETRONET LNG
Industry At A Glance • The oil and gas sector is among the eight core industries in India and plays a major role in influencing decision making for all the other important sections of the economy. • Domestic refiners‘ import of crude oil increased 9.1% y-o-y to around 18.81 mmt during August 2016 • Coal accounts for more than 50% of energy consumption in the country. The next biggest share is of oil and this is what gas is basically competing with. • India is the fourth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea and China, and accounts for 5.8% of the total global trade. • Domestic LNG demand is expected to grow at a CAGR of 16.89% • Gas supply deficit is expected to expand from 196(2015-16) to 285 mmscmd in 2020. This gap can only be filled by imports of gas either in the form of transnational pipeline or LNG imports • Fertilizer and Power sector will remain the biggest consumers of gas in the country, accounting for almost 60% of the total gas consumed. • Ministry of Petroleum and Natural Gas have launched a pilot programme, aimed at introducing compressed natural gas (CNG) as fuel for two-wheelers. About Pertonet Lng • Petronet primarily operates in Natural Gas business.
-Zaid Ahmed
• Formed as a Joint Venture by the Government of India to import LNG and set up LNG terminals in the country. • Promoters are GAIL, ONGC, IOCL and BPCL with each holding 12.5% stake in the company • Petronet‘s sole activity is import and Regasification of Liquefied Natural Gas (LNG) and then delivery to off-takers (GAIL, IOCL, BPCL) and customers. • LNG Sourcing: Company has long-term supply contracts for LNG imports with RasGas, Qatar and Mobil Australia Resources Company (MARC), Australia for 7.5 MMTPA & 1.44 MMTPA respectively. • Petronet has Re-gasification terminal at Dahej, Gujarat and another terminal at Kochi, Kerala. It is in the process to build a third terminal at Gangavaram, Andhra Pradesh. Petronet is looking at further expansion of Dahej terminal from 15.00 MMTPA to 17.50 MMTPA with addition of one LNG Storage Tank and 2.5 MMTPA Regasification facilities. • Petronet is prepared to face competition from Indian as well as overseas players in the market through long term tie-up of LNG/ Regas capacity. Financials And Pricing During 2015-16, the company achieved a turnover of 27,133Cr as against 39,501Cr in 2014-15. The net profit during the year stood at 914Cr as against 883Cr in 2014-15. Inspite of an increase in quantity, the reduction of turnover in value term is primarily due to erfec 29
reduction in LNG prices(sale) and increase in regas service cargoes. Besides the long-term LNG contracts, the company also buys LNG on spot and shortterm basis from many international players. Due to sharp decline in crude prices, the price of LNG(sourcing) under RasGas long term contract was higher in comparison to other spot LNG prices, leading to lower off-take by consumers. With a view to mitigate the impact of high priced LNG, the company along-with off-takers GAIL, IOCL and BPCL, under the guidance of Ministry of Petroleum & Natural Gas, undertook the task of price restructuring with RasGas, Qatar. Such price reopening is very rarely done in the global LNG trade. Note: Rs. 100 invested in NIFTY 50 and PETRONET in 18th August would have yielded you Rs.109 in PETRONET and Rs.93 on the index today
burgeoning gasoline demand on the back of strong car and two-wheeler sales and an expected surge in energy consumption led by growth in manufacturing sector. Due to environmental concerns(Delhi smog) and India‘s participation in Paris Agreement to limit green house gases, Petronet believes that increasing the share of natural gas in the country‘s energy mix will will become even more essential and will fuel the company‘s growth.
The company reported the highest quarterly profit in July-September this year on account of revised price restructuring with RasGas amid low crude oil prices. Stock could extend gains as investors could treat it as a defensive bet amid general uncertainty about the effect of demonetisation on economic growth. Demonetisation move would not impact the company's volumes as the products fall into the category of basic necessities.
The Trend of Petronet is Bullish. Focusing on the weekly trend we find that the stock is trading below 30-day moving average. So the short term trend is weak and avoid long position. For long term we may take long position near 345-350 levels. The RSI is 65 which is high and nearing its resistance of 80.So we would recommend to wait and accumulate the stock at 345 levels. The lower Bollinger band is at 340 which again supports to buy the stock near 345 levels. Outlook Due to depressed oil and gas prices, upstream sector looks bleaker while India‘s refiners and marketers become more profitable from rerfgeg 30
31
FINANCIAL TRIVIA In 1790, to pay for war debt, the federal government refinanced all federal and state Revolutionary War debt by issuing $80 million in bonds. These become the first major issues of publicly-traded securities and marked the birth of the U.S. investment markets.
THE IBS TIMES The IBS Times is an academic print and is not for any commercial sale. Reliability and Responsibility for sources of data for the articles vests with the respective authors. Please feel free to drop in your suggestions or any feedback at editor.ibstimes@gmail.com Š IBS Times – FinStreet, The Official Capital Markets Club of IBS Hyderabad. All Rights Reserved Visit us at www.finstreetibs.org
32