How Indian corporates are coming out of the lull ever since 2008 meltdown
Vodafone-Idea merger and Hindalco-Aleris deal signal a revival in the industry.
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It has been an eventful week for the $44.3 billion Mumbai-based diversified conglomerate Aditya Birla Group.
On the one hand, the department of telecommunications (DoT) gave its approval for the merger of the group’s telecom arm Idea Cellular with Vodafone India to create India’s largest mobile telephony company with over 430 million subscribers and 40 per cent of industry revenues.
Vodafone-Idea deal displaces Bharti Airtel from the number one position.
On the other, Novelis, an arm of group firm Hindalco, has bought US aluminium sheet maker Aleris Corp at an enterprise value of $2.58 billion to create the world’s second largest aluminium maker. It was in March last year that Vodafone and Idea agreed to merge in a deal valued at $23.2 billion. The deal, necessitated by the exponential growth in Reliance Jio’s 4G subscriber base (recent reports say Jio has around 215 million subscribers), displaces Bharti Airtel from the number one position.
Airtel had 305 million subscribers as on March this year, which was 29 per cent of India’s total mobile subscriber base of over 1 billion. Idea had 211 million and Vodafone had 223 million subscribers, taking their combined subscriber base to 434 million.
Jio’s entry and the ensuing tariff war had a big impact on the revenues of Vodafone and Idea, ranked second and third in the market so far.
For the January-March quarter, Idea’s net loss widened to Rs 930.6 crore from Rs 325.6 crore a year ago but narrowed from Rs 1285.6 crore in previous quarter.
Revenues fell 24.5 per year on year and 5.7 per cent sequentially to Rs 6,137.3 crore.
Indian corporates are coming out of the lull in large-scale buys overseas ever since the global meltdown of 2008.
Meanwhile, Vodafone India’s service revenue fell 31 per cent Rs 7,666 crore in the three months ended June. The merger is seen as a positive for customers of both Idea and Vodafone, since it marries the financial muscle of Idea’s promoters with the technological edge of Vodafone. The merger will lead to better infrastructure, better services and better tariffs for the combined entity, which will hold 1,850 MHz of liberalised spectrum, and will be capable of building substantial mobile data capacity.
It will also likely benefit from operational synergies.
For the January-March quarter, Idea’s net loss widened to Rs 930.6 crore from Rs 325.6 crore a year ago
The acquisition of Aleris Corp, meanwhile, will help Hindalco expand its sales in the lucrative automotive and aerospace segments. This is Hindalco’s second major overseas acquisition after buying Novelis for $6 billion in 2007.
The acquisition also signals that Indian corporates are coming out of the lull in large-scale buys overseas ever since the global meltdown of 2008. The deal will also help Hindalco cash in on the Trump administration’s move to boost domestic companies by imposing 10 per cent tariff on aluminium imports.
“Due to the current capacities in the domestic market still being in excess of demand, it becomes imperative to focus on investments in downstream product market globally,” says Rahul Prithiani, director, CRISIL Research.
Further, manufacturing capacity in some US and EU markets derisks from any trade related disruptions on account of change in duty structure, he adds.
(Courtesy of Mail Today)