Why are IPOs still attractive: A comparison between going public or staying private

Easy access to capital, as well as inexpensive leverage, has led to an increase in activity of PE buy-outs of market leaders with strong cash flow. The competition for objects that are for sale has amplified, which has resulted in price increases of the objects. The higher prices offered by the PE companies also affects the number of initial public offerings (IPO) on the Stockholm Stock Exchange. One reason for the small number of current IPOs is that the objects simply have been valued higher by PE companies than they would do in an IPO.

The purpose with this thesis is, from a shareholder’s point of view, to analyze and describe the reasons of making an IPO instead of selling to a PE company.

Contents

1 INTRODUCTION
1.1 BACKGROUND
1.2 PROBLEM
1.3 PURPOSE
1.4 DEFINITIONS
2 METHODOLOGY
2.1 QUALITATIVE APPROACH
2.2 DEDUCTIVE APPROACH
2.3 PRIMARY DATA COLLECTION
2.3.1 Research Sample
2.3.2 Interviews
2.4 VALIDITY, RELIABILITY AND GENERALISATION
3 THEORETICAL FRAMEWORK
3.1 FINANCIAL MARKETS
3.2 IPO
3.2.1 Motives for IPO
3.2.2 Valuation of IPOs
3.2.3 Preparations and Requirements for IPO
3.2.3.1 Before the IPO
3.2.3.2 After the IPO
3.2.4 Performance of IPOs
3.3 BUY-OUT
3.3.1 Motives for Buy-out
3.3.2 Valuation of Buy-outs
3.3.3 Preparations and Requirements for Buy-out
3.3.3.1 Before the Buy-out
3.3.3.2 After the Buy-out
3.3.4 Performance of Buy-outs
3.4 THEORETICAL DISCUSSION
3.4.1 Questions Arising from the Theoretical Discussion
4 EMPIRICAL FINDINGS & ANALYSIS
4.1 WHAT WERE THE MAIN MOTIVES FOR MAKING THE IPO?
4.2 HAVE THE STATUS AND/OR THE PUBLICITY OF THE COMPANY CHANGED SINCE THE IPO?
4.3 DO YOU THINK THAT THE MARKET NORMALLY MAKE ACCURATE VALUATIONS OF PUBLIC
COMPANIES?
4.4 WHAT WERE THE DISADVANTAGES OF MAKING AN IPO?
4.5 ARE THERE ANY DISADVANTAGES OF BEING A PUBLIC COMPANY?
4.6 WERE ALTERNATIVES TO IPO DISCUSSED?
4.7 WOULD THE PREPARATIONS TO SELL TO A PE COMPANY BEEN DIFFERENT THAN MAKING AN
IPO?
4.8 PREMIUM PRICES ARE OFTEN PAID WHEN TAKING A PUBLIC COMPANY PRIVATE (SEE RECENT BID
ON GAMBRO). WOULD NOT THE COMPANY THEN BE VALUED HIGHER PRIVATE THAT PUBLIC?
4.9 CAN THE COMPANY VALUE BE AFFECTED BY WHO THE SHAREHOLDERS ARE?
4.10 HOW DID THE OWNERSHIP FOR THE MANAGEMENT TEAM CHANGE WITH THE IPO?
4.11 HOW WOULD THE MANAGEMENT TEAM VALUE THE SIMPLICITY OF BEING PRIVATE, I.E. BE
SPARED FROM PUBLIC DEMANDS?
4.12 IF THE SHAREHOLDERS FACED THE SAME SITUATION AGAIN, WITH IDENTICAL CONDITIONS,
WOULD THE SAME DECISION BE MADE, I.E. MAKE AN IPO?
5 CONCLUSION AND DISCUSSION
5.1.1 Conclusion
5.1.2 Discussion
5.1.3 Authors reflections
5.1.4 Critique of Chosen Method
5.1.5 Further Research
REFERENCES
APPENDIX

Do You Need to Go to IRCE?

IRCE stands for the Internet Retailer Conference and Exhibition, the major trade show for E-retailers. It is being held June 15-18 at the Boston Convention Center. There is definitely a culture split in the internet business: there is the corporate internet world — ebay.com, Target.com, Overstock.com, Meijers, Kohl’s — you get the idea. Then there are us scruffy guys — upstarts, guerillas, part-timers, millionaires-to-be. IRCE is corporate. It’s THE trade show for E-retailers but it’s overkill if you’re just starting out and working on the basics of building your empire. There are separate “tracks” you can attend. There is a Track B: Corporate Management and a Trade D: Small Retailers (as well as tracks for Operations, Marketing…) But judging from the conferences and workshops “Small Retailers” is for “Mid-size Retailers” in our humble opinion. (workshops like negotiating with vendors, how to right-size your fulfillment center — fullfillment center?! You mean our garage?). Unless you are mid-sized, Worldwide Brands is a great solution, at least to start. One interesting note: the founders of www.zazzle.com are scheduled to speak. We’ll talk about them in a future post. (But keep this is mind: Zazzle is not a “small retailer” — the Google founders invested $16 million in the company.)

Of course, one day, you may find you have built an empire, and you — or your employees — will need to attend — or exhibit — at this trade show. But for now, just be aware of it — for later. If you do wanna go now, go to www.IRCE.com. The standard 2-Day Conference and workshops pass is $1,295 (early bird special $1,195 before April 1). But like we said, we’d rather invest that two grand into a smart Google Adwords campaign, so we will have much more money to attend later on, if we wanna.

Network Marketing Success- What’s the Secret?

Network Marketing Success, Many Have Tried, Many Have Failed. So What’s the Secret?

Network marketing success: Why are some able to soar to greater heights while others fall, crash to the ground, and burn to a blackened crisp? Is it destiny or fate? Is there really a secret formula or are some just lucky?

I have talked to many people with these questions. The reason they are asking is because they want to achieve network marketing success but are unwilling to step out and test the waters. They are waiting until someone guarantees them internet success.

This is something I am unwilling to do. If someone guarantees you that you won’t fail, probably you should run away as fast as you can in the opposite direction. Success will only come to those who are willing to pay the price. The only person who knows that for sure is you.

Getting back to some of the questions that were asked, is there a secret? Well, I think the answer to that is yes. Probably there is more than one. I’m not sure how secret the secrets are anymore, but there are things you need to know.

If you want network marketing success, your greatest asset will be you. The number one reason most people in network marketing fail is a lack of action. YOU have to act. YOU will need to do the work involved. Of course, there are many other factors as well.

Money is another factor. If you don’t learn how to monetize, you will end up spending more money than you ever make each month. I’m not saying you need to have tons of money in order to succeed, but to say you will not need any would be a falsehood on my part.

Those who succeed are those who are willing to pay the price. There may be many paths to reach your goal, but the ones who will stay on their path and not be swayed will be the ones to reach their goal.

The awesome thing about this business is the amount of useful information available through the internet. Many experts in the field are willing to share their network marketing success.

They have paid a huge price to accumulate valuable information through years of experience. In turn, they now give it away to you free.

When someone looks at it from that angle, it gives them a responsibility to make sure they don’t squander what they have been given. Sometimes, if we obtain something free of charge, we forget its value.

I believe part of our network marketing success has to do with our attitude. Not only does this affect you personally, it also affects those with whom you come in contact. I can tell almost immediately when I am talking to a negative person.

Our words will give us away. No matter what the subject is, the negative person always finds a way to point out why something won’t work. A positive person is always looking for a solution to the problem.

In order to have network marketing success, make sure you not only follow all the guidelines found on this hub, but begin to have a positive outlook. This will go a long way toward helping you succeed.

Wells Fargo Bank Cuts Its Dividend By 85%

On March 6, 2009, Wells Fargo bank announced that it would slash 85% of its dividend which would reduce the price to a nickel per share. According to Wells Fargo, this move will save them approximately $5 billion per year. Wells Fargo is a San Francisco-based bank which took over Wachovia Corp. five months ago.

The bank refused to confront its investors about their decision to slash the dividend through a conference call. Wells Fargo also confirmed their strong position this year as their shares increased by 7% recently to $8.69.

Wells Fargo is not the first bank to cut its dividend during this economic crisis. Most of those banks that survived the banking crisis such as JPMorgan Chase & Co., PNC Financial Services Group Inc and US Bancorp have decided to cut their dividend by 85%.

Wells Fargo recently took $25 billion from the government in shares and through this cut, they plan to pay the government as soon as possible. John Stumpf, president and chief executive, said, “These actions will help us repay the government’s investment at the earliest practical date.”

ROBIN BANERJEE APPOINTED AS CFO OF SUZLON

The fifth largest turbine maker of world, Suzlon Energy, has filled its post of chief financial officer (CFO) by appointing Robin Banerjee with immediate effect. Robin Banerjee is having an international working experience as he has worked at the top positions of varied domains like finance and treasury and M&A in industries like travel, steel, FMCG, auto etc.

Sumant Sinha, the COO of Suzlon, said that Robin's experience of working will bring value to the company for its share holders.

Simplex Infrastructure eying to grow revenue by 30%-40%

Construction company Simplex Infrastructures Ltd is eying to grow its revenue by 30% - 40% with a core margin of 10% in the near future by maintaining a good order book, as stated by a company official.
The company is looking out to maintain its order book at Rs.100-120 billion till the end of this year, as stated by Amitabh Mundhra, Director of the firm.

RBI TO CONDUCT SPECIAL REPO AUCTION

The Reserve Bank of India is going to have a repo auction for Rs.583.30 billion on Friday and its reversal on March 30 as stated by the bank.

A special repo facility for Rs.200 billion special was introduced October 14 in order to meet the mutual funds liquidity needs. The facility was increased later to Rs.600 billion to meet the needs of housing finance companies and non-banking financial companies also.

Hyundai i10 sales crosses 3,00,000 units

Hyundai Motor India Ltd (HMIL), one of India's leading car makers, has stated that its small family car i10 has successfully crossed the sales mark of 3,00,000 units since it has been launched in October 2007. Around 1.44 lakh units have been sold in India and other 1.56 lakh units were exported to more than 100 countries world over, as stated by the company.

HMIL exacted it is the fastest ever sale of 3,00,000 units of any car amongst its competitors. HMIL Senior Vice-President (Marketing and Sales) Arvind Saxena stated that he would like to thank all the customers in India and abroad to select i10 over others and to make it reach to that height.

North East States Report

The North East Region (NER) refers collectively to the eight states located in the midst of the East Himalayan region, comprising Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura. Primary sector activities mainly comprise of cultivation on which approximately 75 per cent of the region's population depends for employment; agriculture accounts for approximately 30 per cent of the Net State Domestic Product (NSDP).

Industrial products primarily include crude petroleum, natural gas, tea, minerals and steel fabrication. Total amount of investment approved by the Ministry of Development of North-East Region (DoNER) was US$ 1.31 billion. The maximum amount was approved for Assam, Tripura and Nagaland for roads, power and education sectors.

State Report (FY 2008-09)
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State Presentation (FY 2008-09)
Click Here to Download . Size:1.26 mb

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Govt plans stimulus package for chemical industry

Days after announcing excise duty cuts on commodities like steel and cement, the government is working on a plan to provide a major stimulus to the chemicals and petrochemicals industry by revising Customs/excise duty on inputs required by the industry.

The proposals under consideration include waiving the current 5 per cent Customs duty on naphtha and reducing the excise duty on mono ethyl glycol (MEG) from 8 per cent to 4 per cent.

The Cabinet secretariat has sought views from various ministries and departments for this package. “The chemical sector is one of the sectors that have been adversely affected by the global economic crisis,” the Department of Chemicals and Petrochemicals has observed.

Drastic fall in prices, slump in export orders and a substantial slowdown in demand in the domestic market have forced the chemical industry to curtail expansion plans and operate at lower capacities.

Grasim, which manufactures viscose staple fibre for the textile industry, saw sales volume decline by 22 per cent in the third quarter. Consequently, the company has decided to scale down production.

With the crash in crude oil prices from $147 per barrel in July 2008 to $40-45 levels now, prices of all chemicals, solvents, polymers and petrochemicals have also fallen sharply. Currently, prices of many chemicals are prevailing at the 2002-03 levels, according to industry experts.

The above measures have been proposed following the department’s interaction with industry associations, including the Chemicals and Petrochemicals Manufacturers Association, All-India Plastic Manufacturers Association, Indian Chemicals Council, Association of Synthetic Fibre Industry and Alkali Manufacturers Association of India.

'We outsource for value, not cost'

As banks continue to look at outsourcing most of their IT services, UK-based major Standard Chartered continues to have a large in-house IT team servicing close to 60% of its functions. While Citi is the only major bank to sell off its IT captives, the European bank has no such plans with its back-office Scope International based in Chennai, StanChart’s Group Head of Technology David Awcock says in an interview..

Q: What percentage of StanChart's overall IT spends is outsourced to third-party vendors and how much of it is to Indian IT vendors?

A: We have 6,000 employees in our IT team at StanChart across the world with a majority of them in India. We outsource approximately 40% of which close to 10% is to Indian vendors. Only a limited portion is outsourced as we have our own expertise to handle most IT functions. While data centre network services and desktop support services continue to be managed by third-party vendors, only a limited part of our software services is outsourced.

Q: Will you increase outsourcing as it would help save costs further?

A: Firstly, we have never outsourced because of cost arbitrage. We look at the capabilities we have in Chennai and Kuala Lampur as value and not cost centres. Yes, these are challenging times and we are doing everything to ensure that we use this opportunity to increase efficiency internally. However, we will not be outsourcing any more than we already have. We have our own expertise in wholesale banking and payment systems, which we would not like to outsource to a third party as they would not value IT, the way we do.

Q: How is it more cost-effective to develop your solutions in-house compared to outsourcing?

For our in-house developed core banking software platform we do not need to pay a vendor for licensing the application software. Charges usually consist of an initial licence charge (ILC) per country plus an annual maintenance charge (AMC) which is up to 20% per annum of ILC typically. In addition our software development from the outset has been based upon using JAVA and other open source tools to run in a Linux environment. This provides us with a low-cost development platform going forward and a cost-effective operating platform. For instance, we recently launched our own core-banking product in Chennai that has been released across 31 other geographies over the last five years. We will not want to give this up as we believe it is better than any other package or solutions present in the market.

Q: Are you re-negotiating any of your current contracts? Do you see a drop in billing rates?

A: All our vendor contracts that are coming up for renewal will now be negotiated very keenly. Especially with desktop and network vendors. Now is a good time for us as customers are in a better position to bargain with vendors as there is some tough competition between vendors. Each one wants to do better than the other in the services offered. We are expecting a downward revision of at least 10% compared to the current bill rates.

Q: How is your relationship with Indian vendors changing?

A: Vendors are willing to be more flexible now and it is easier to draw contracts. Indian vendors have been very much fixed on their US business and also maintaining high margins. This is changing. We never looked at Indian vendors for low costs, but for skills and niches we did not have. Earlier only the likes of IBM and EDS used to approach us with infrastructure services. But these days Indian vendors too are approaching us with these services and not just software services. We are having healthy discussions with them and are looking at contracts that add both value and are cost-effective for us.

Q: Do you prefer to work with large vendors or are you open to working with the smaller ones too?

A: We have relationships with large vendors in India which are satisfactory. We are willing to talk to smaller vendors as they are more flexible and have new ideas. If the smaller guys have the expertise in niche areas like financial markets and it suits our needs, then we would be very much interested. But we prefer to work with fewer vendors. Currently we are working with about three large ones and 10-11 smaller vendors.

India bright spot in MNC gloom story

Indian subsidiaries, relatively minor cogs in the wheels of large multinational companies until 2007, have emerged as crucial profit generators, as earnings in developed western markets tumble amid the worst economic downturn in a generation.

Barring a few exceptions, the locally-listed units of companies such as ABB, Glaxo, Siemens, Cummins, Oracle, Suzuki, Whirlpool, Nestle and Areva have increased their contribution to the global consolidated earnings, as growth remains robust in various sectors of Indian industry.

Significantly, this has happened despite a sharp depreciation of the rupee against major international currencies in the past one year, which tends to depress earnings in dollar terms, as the dollar value of the subsidiary’s contribution is lower after currency conversion. Had this not happened, the contribution of these Indian units would have been much higher.

The Indian unit of engineering group ABB contributed 18% of global profits in the last quarter. ABB India posted a net profit of Rs 193 crore ($50 million) in the October-December quarter of 2008, up 7% from the year-ago period. The parent company, by comparison, posted a nearly 88% drop in net income globally for the fourth quarter at $213 million.

Diesel engine maker Cummins reported a 78% jump in net profit to Rs 133 crore in the fourth quarter of 2008 at its Indian operations. This comes at a time when its parent’s net earnings more than halved to $43 million. As a result, Cummins India’s contribution to global earnings has jumped to almost 63% from about 10% in the Q4 of 2007.

Ditto with business software major Oracle, which acquired Indian banking software company i-flex (now Oracle Financial Services Software) four years ago. It posted a 74% increase in profits (Rs 193 crore) from India for the October-December quarter. For the same period, Oracle’s global earnings fell 0.7% to $1.29 billion.

India’s biggest carmaker, Maruti Suzuki, has helped its Japanese parent despite lower profits. Suzuki’s losses during the last quarter would have been higher by 32% (around 4 billion yen) had it not been for the contribution from Maruti.

Similarly, consumer durables company Whirlpool India reported lower earnings for the October-December quarter, but still contributed a higher percentage of profit, which rose to 3.2% from 1.1%.

Despite a drop in revenues during the fourth quarter, Siemens India’s contribution to its parent’s earnings has risen to around 4% from 0.5%, while in the case of GlaxoSmithKline, which has two separate listed companies in India, the combined profits from its consumer goods and pharma units more than doubled to Rs 240 crore. The UK parent reported a 10% drop in earnings to £1 billion during the quarter.

Some like Colgate reported better earnings growth in India compared to the global firm, but a 25% depreciation in the rupee’s value against the dollar over the past one year brought down its contribution to the consolidated earnings. Swiss cement maker Holcim’s two Indian firms, ACC and Ambuja Cements, together saw profits drop around 25% for 2008. But this drop was much lower compared with Holcim, the profits of which for the year more than halved.

India’s economy, which grew by more than 9% on average in the past three years, is expected to slow to near 6-7%, but this is far better than the deep recession staring at most developed economies. However, HDFC Bank chief economist Abheek Barua chose to play down the impact of Indian subsidiaries.

“Whether India and China can help the global economy to grow with them is yet to be seen. Similarly, it is still unclear whether the Indian arms can lift the global performance of MNCs to stem the global downturn,” he said.

The past two years have seen a sea change in the profile of a majority of Indian arms of multinationals, from being revenue drivers for their parents, they have now metamorphosed into significant profit generators. Nestle India reported a 29% jump in net profit for 2008, while its Swiss parent posted a 17% drop in profit, excluding a one-time gain from a stake sale in a company.

One exception to the trend was Hindustan Unilever. Its Anglo-Dutch parent Unilever reported a sharp 51% jump in profits during the fourth quarter of 2008, while the Indian arm reported a decline in profits. A company spokesman did not respond to a specific query on the likely reasons behind the dip in profit contribution, but the firm had earlier said its profit decline was because of exceptional items.

Profits apart, for many global firms, India is generating better revenues too. For the world’s largest mobile operator, Vodafone, its Indian subsidiary Vodafone Essar posted a 37.3% jump in revenues to $674 million for the quarter ended December 31, the highest in percentage terms among the 30-plus countries it operates in. Two of every three new mobile customer that Vodafone added during the quarter globally were in India.

For GlaxoSmithKline’s consumer healthcare business, India is among the top five markets globally in terms of sales. The company believes its focus on local brands is giving it the edge. “Only 5% of our sales in India come from global brands, the rest is from brands managed locally. This speaks of the potential the local arm has,” said executive vice-president for marketing Shubhajit Sen.

Coca-Cola India is another example. Although it does not have a publicly-listed arm in India and its profit contribution is not known, the company has delivered its 10th straight quarter of growth. In India, the company’s unit case volumes increased 28% in the fourth quarter. Nestle has also generated eight straight quarters of 20% plus sales growth.

FDI shoots up 90% this fiscal to Rs 85,700 cr

Foreign investment inflows into India grew 90% in the first eight months of the current fiscal year, indicating that the country continues to be an attractive destination for investors despite a fall in economic growth rates.

Foreign direct investment (FDI) inflows during the April-November period stood at Rs 85,700 crore compared with Rs 45,000 crore in the corresponding period of the previous fiscal, despite most of the developed world reeling under the impact of a global recession. According to the FDI data compiled by the commerce and industry ministry, investments from three Asian countries — Mauritius, Singapore and Japan — contributed more than 55% of the total inflows during the period.

Economists see nothing unusual in the situation. “Today, India and China are the warm spots in the global economy. We expect high growth in India as there is huge unmet demand. India is growing faster than the more mature economies of the world, and this is luring investors into India,” Boston Consultancy Group chairman Arun Maira said.

Mauritius remained the largest source of foreign investment, with the island nation contributing Rs 35,000 crore in FDI inflows during the April- November period, almost doubling its contribution from Rs 19,000 crore in the same period of the last fiscal.

Singapore replaced the US as the second-largest source of long-term investments into India. Singapore, which was placed fifth last year, saw its investments growing to Rs 8,500 crore during the period from Rs 3,500 crore in the same period last year.

Increased investment from Singapore came from the investment arms of the government: GIC and Temasek. Temasek Holdings Advisors India made a Rs 2,500-crore investment in Bharti Infratel while GIC affiliate Indivest Pte invested Rs 900 crore in Reid & Taylor, a clothing company promoted by S Kumars. Japanese investment into the country received a major boost when Daiichi Sankyo invested Rs 20,000 crore to pick up 63% stake in Ranbaxy.

However, the FDI figures captured by government statistics may not necessarily reflect the actual origin of investment. For instance, tax havens like Mauritius are used by investors from across the world to invest in India.

While Mauritius remains the No. 1 source of such FDI routed into India, other tax havens are also catching up. European hub Cyprus is gaining ground as a favoured route for channelling FDI into the country. Investments from Cyprus doubled to Rs 4,486 crore in the April-November period this fiscal from Rs 2,000 crore in the same period last year.

Inflation falls to over six-yr low of 2.43%

Inflation fell to a six-year-low of 2.43% for the week ended February 28 from 3.03% in the previous week, raising possibilities of further rate cuts. Analysts expect it to reach 0% by the end of this month. Lower prices of food items and manufactured products resulted in a fall in the inflation.

“Wholesale price index (WPI)-based inflation is now at its lowest level since June 2002, This is on the expected lines. It was during last February and March that inflation increased. The prices of commodities, primarily oil and foodgrains, have moderated,” said Pronab Sen, chief statistician of India and secretary, ministry of statistics & programme implementation.

Inflation is now below Reserve Bank of India (RBI’s) target of 3% by this fiscal-end. The fall in inflation has also raised hopes of further rate cuts by the Reserve Bank of India to spur the economy as industrial output contracted to 0.5%, for the second month in a row in January 2009. The RBI could cut policy rates by 50 basis points ahead of the general elections starting in mid-April, HSBC said in a note on Thursday. With a decline in the commodity prices, fiscal policies eased resulting in interest rate cuts, domestic activity should remain resilient, HSBC said. The RBI slashed its short-term lending and borrowing rates by 50 basis points each last week.

Inflation for the week ended January 3, 2009, was revised upward to 5.33% from 5.24% in the provisional estimates.

The 30-share BSE Sensex ended up 2.25% at 8,343.75 points and the 50-share NSE Nifty ended up 1.72% at 2,617.45 points, as investors tried to catch up with the upward movement on Wall Street on Tuesday and Wednesday. The 10-year bond yield ended at 7.17%, above Monday’s close of 6.84% as investors braced up for heavy supplies of government debt. The rupee ended at 51.88/90 per dollar, from Monday’s close of 51.85/87, and off an intra-day peak of 51.525, as a rise in share prices was offset by renewed dollar buying by crude refiners after a rebound in global oil prices.

Primary articles’ prices decreased to 5.8% for the week ended February 28 from 6% in the earlier week, the finance ministry said in a statement. In food articles, inflation remained stable at 8.3% in the current and previous weeks, but sub-groups such as fruits and vegetables, condiments and spices and other food articles have recorded an increase in prices compared to last week.

In non-food articles, inflation fell to 1.3% compared to 1.7% in the previous week. Fuel and power group prices continued to decline at 5.1% vis-à-vis 4% last week. Manufactured products’ inflation rate decreased to 4% in the current week, from 4.5% last week.

Domestic drug makers immune to slowdown

At a time when various industries have been been hit due to the current economic slowdown, the domestic pharmaceutical market registered a value growth of 14.4 per cent in January and 9.9 per cent in the 12 months ended January 2009. The yearly turnover was Rs 34,487.17 crore.

The growth of the domestic drug sector, which was just 6.8 per cent in November 2008, improved to 13.2 per cent in December and to 14.4 per cent this January.

“This is because of the seasonal nature of drug sales. Sales of drugs for cough and cold, respiratory diseases, and of other antibiotics are usually more during the November-January winter season,” said Ranjit Kapadia, head of Life Science Research at Prabhudas Liladhar.

Data revealed that while sales of anti-infectives grew 11.6 per cent, the gynaecology segment grew 15.9 per cent, and vitamins and minerals 13.1 per cent. The demand for drugs for respiratory diseases increased 12.1 per cent this January.

This is far ahead of the growth rate of the global generic industry. The rate came down to 3.6 per cent in the 12 months ending September 2008, from 11.4 per cent in the previous 12 months.

Data for January said Cipla — which markets 844 drugs in the domestic market — show it maintained its number one position by growing 14.6 per cent in January. For the 12 months, Cipla’s domestic business grew 13.4 per cent, with a turnover of Rs 1,839 crore. Cipla has 5.34 per cent domestic market share.

The second largest domestic player, Ranbaxy Laboratories, which markets 536 products in the domestic market, grew 7.2 per cent in January. For the 12 months, Ranbaxy’s growth was 11.5 per cent in value terms. Its market share rose to 5.03 per cent. Ranbaxy’s growth in the domestic market in value terms in 2008 was only 7 per cent, with a turnover of Rs 1,485 crore, compared with Rs 1,393 crore in 2007.

ORG-IMS data revealed that the market share of the other top 10 companies in the domestic market remained more or less the same. GlaxoSmithKline retained its third position, followed by Piramal Healthcare, Zydus Cadila, Sun Pharma, Alkem Laboratories, Lupin Labs and Mankind Pharma. Companies such as Piramal Healthcare (30.3 per cent), Alkem Laboratories (21.6 per cent), Mankind (26.5 per cent), USV (34.2 per cent), Ipca Labs (43.2 per cent) and Indoco Remedies (22.1 per cent) grew their sales substantially in January.

ORG-IMS, which tracks sales of pharmaceutical drugs in India, had earlier projected that the domestic market would grow 10.3 per cent (in value terms) until November 2008, to Rs 33,769 crore, over the 12 months of the previous year.

Analysts said better health insurance coverage, more government funds, introduction of mass healthcare projects such as the National Rural Health Mission (NRHM) and increasing rural penetration by pharmaceutical companies contributed to the growth of domestic drug sales. It is estimated that more than 65 per cent of the Indian population lacks access to proper healthcare facilities and drugs.

A YES Bank study has estimated that the demand for drugs in India will grow due to rising population, especially those over 60 years of age, and rising incomes. It said the domestic formulation industry market would touch $21.5 billion by 2015. A KPMG analysis said the domestic market’s compounded annual growth rate over the next few years would be 13.1 per cent. It would reach $11.2 billion by 2011-12, KPMG predicted.

“Future demand for domestic formulations would be driven by chronic therapeutic segments such as anti-diabetic, central nervous system, cardio-vascular systems and gastrointestinal drugs on account of changing lifestyles,”

Aircel plans Rs 1000cr spread in Andhra

GSM telecom player, Aircel Limited, will be investing Rs 1,000 crore in Andhra Pradesh by the end of this calendar year, said company’s chief operating officer Gurdeep Singh.

This is part of the company’s $5-billion (over Rs 25,500 crore) pan-India expansion spanning the next three to five years, which envisages covering the National Capital Region, Uttar Pradesh (east and west) and Mumbai circles by mid April this year, and eventually connecting Gujarat, Madhya Pradesh, Rajasthan, Punjab and Haryana by mid 2010, he told mediapersons here on Thursday.

“We currently have a national subscriber base of 17 million, with about 10 million predominantly in Tamil Nadu and the rest split between the 11 circles including North East and Assam. We expect this to grow to 30 million by 2009,” Singh said, adding the company aims to achieve a double digit market share nationally in the next three years from the present 5 per cent.

Detailing the expansion plans for Andhra Pradesh, he said the company would invest Rs 500 crore in the first phase for building base stations, installing switches and intelligent network, creating a data centre and setting up offices besides enhancing its retail presence by mid May, and an equal amount by this year end.

The initial phase will have 450 stations for Hyderabad and Secunderabad. This will be scaled up to 1,000 base stations in the next 60 days when all the major cities including Vijayawada, Visakhapatnam, Warangal and Kadapa will be covered, and touch 2,000 stations by this year end. Besides, the number of self service kiosks will be increased from four to 20 during the same time frame.

“We are right now sharing passive infrastructure (towers) on rental agreements or on longer lease basis with other operators,” Singh said after launching Aircel’s GSM services in the city

Hyderabad, with a penetration rate of 78 per cent, has 2 million migrants out of a total population of 8.1 million, which is indicative of the huge potential the market holds for Aircel, Singh said.

Replying to a query, he said the company was in talks with handset manufacturers to provide application-oriented handsets, which will be rolled out from June this year.

R-ADAG to buy 51% in UK currency company

Reliance ADAG is acquiring 51% stake in UK-based currency exchange and money transfer firm No 1 Currency to foray into the international forex business and to tap onto the 1.6 million NRI population in the country for money remittance business, a top company executive said. Although the deal value stands undisclosed, a person with direct knowledge of the transaction said the Indian business group will shell out Rs 100 crore to pick majority stake in the UK company.

The deal, first reported by ET in its edition dated December 16, 2008, will mark the first overseas acquisition of a foreign exchange company by an Indian firm.

Edinburgh-based No 1 Currency operates close to 300 currency exchange outlets in the UK and is one of the fastest growing independent foreign currency specialists in the country. Formed in 1996, the privately-held firm is owned by its two founding partners David Hale and Mark McElney.

As per the transaction, Reliance Money Express, a subsidiary of Reliance Capital will acquire shares from both the current owners who will continue to be minority shareholders.

Reliance Money CEO Sudip Bandyopadhyay, who is part of the team overseeing the money transfer business of the R-ADA group, confirmed the deal, “The existing management of No 1 Currency would continue to lead the firm. Reliance ADAG will get 2-3 board seats once we complete the transaction.” He declined to comment on the deal value.

Trai suggests 3 year lock-in on stake sale by new telcos

While recommending a blanket ban on promoters of new telecom licensees from selling their stake for a period of three years after getting the licence, the Telecom Regulatory Authority of India has added a caveat. In case a promoter does wish to sell his stake in the first three years of getting the licence, then 50% of the transacted amount must be paid to the government while the remaining 50% must be invested back into the telecom company.

While recommending the same Trai has acknowledged that the new licences given by the department of telecommunications did not capture the current market price for licences and spectrum. Further, the lock-in period would apply on circle basis and not on a pan-India basis. This means an existing telecom operator, if granted a licence for a new circle would be covered by the regulation. Further, Trai has also recommended that henceforth companies would have to report the promoter shareholding also to the it and DoT on a regular basis.

It is to be seen whether the government now acts upon the Trai recommendation or taking refuge of the model code of conduct for elections lets a new government take a decision on the matter.

FE had first reported on September 28, 2008, that the government was planning to levy a charge on the income earned from such stake sale by licensees in the first three years of getting the licence.

The department of telecommunications (DoT) had finally suggested that in order to raise money the promoter may issue fresh equity shares and the entire amount earned in doing so should be ploughed back into the telecom venture only.

The government had allotted licences to new operators in a controversial manner in 2007, where applicants were allotted licences on first come first serve basis until September. This was done for the first time and was contrary to the practice so far. It was debated that the pan-India licence fee of Rs 1,651 crore was a paltry amount for a lucrative telecom licence and the bundled 4.4 Mhz spectrum which came along with it, since the actual price was much higher and the government was being robbed of thousands of crore.

Later the promoters of new licensees such as Swan Telecom and Unitech Wireless diluted their stake in these companies by issuing fresh equity shares and received astronomical valuations of around $2 billion or around Rs 10,000 crore without starting any operations or investing money on network only on the basis of the licence and the bundled spectrum.

The regulatory body has recommended that there should be a lock-in of the equity share capital of promoter, whose net-worth has been taken into consideration for determining the eligibility for grant of UAS license, for a period of three years from the effective date of licence. However, with prior written approval of the DoT and on fulfillment of roll out obligations, the promoters may be permitted to sell their equity share even during the lock-in period.

GE adds green 'Odyssey' to its India centre

Company’s investment in India R&D totals $175 mn.

At a time when most of the global companies are going slow on their expansion plans in India, GE, the American technology and services conglomerate, has expanded its research and development capabilities in India. The company has opened a new facility at the John F Welch Technology Centre (JFWTC) in Bangalore, GE’s largest integrated multidisciplinary R&D centre outside of the US.

Spread over 3,85,000 sq. ft., the new building Odyssey which has bagged Leadership in Energy and Environmental Design (LEED) gold certification, will house 2000 scientists and engineers. Officially opened on March 6, the green building fits in with GE’s ecomagination initiative, which represents the company’s commitment to solve the world’s toughest environmental challenges, the company said in a statement.

Dr Mark Little, senior vice president, GE Global Research said, “GE greatly values the well developed intellectual capital that India has to offer. The Odyssey building illustrates the increasing role our center in Bangalore has in GE’s global innovation strategy and for local technology development here in India.”

Since its inception in 2000, the JFWTC has grown from 200 scientists and engineers to close to 4,200 people now. GE has its other research centers located in New York, Shanghai (China) and Munich (Germany). With the opening of the new building, GE’s investment in the JFWTC has now totalled $175 million.

As part of GE’s ecomagination commitment, the company has set targets to reduce both its greenhouse gas emissions and water usage, and improve the energy efficiency of its own operations. GE has committed to reducing its absolute greenhouse gas emissions by one percent by 2012.

The company also has set a target of achieving a 20 per cent reduction in water use by 2012. When compared to a standard building, the Odyssey building will offer a 30 to 40 per cent reduction in operating costs, according to the company.

GE is doubling its investment in clean technologies from $700 million in 2005 to over $1.5 billion by 2010 as part of the company’s ecomagination initiative. The company said that the scientists working with JFWTC are playing a significant role in this campaign, supporting global research endeavours in wind and solar power, gas turbine technologies, locomotives and aircraft engines.

India can cut interest rates further, says ADB study

India has room to cut interest rates further, and it should quickly disburse funds related to the fiscal stimulus packages announced recently to cushion economic growth from the impact of the global economic turmoil, Asian Development Bank (ADB) said in a new study published today.

“There is further room for interest rate reductions, particularly in India and Sri Lanka. While most countries have little scope for large stimulus packages, given deficit constraints, India, which has introduced two of them, should disburse the funds swiftly for maximum impact,” the study said.

Titled ‘The Impact of the Global Economic Slowdown on South Asia’, the study also noted that the sub-region had been hit by capital outflows and weaker commodity prices, and faced a sharp slowdown in exports and remittances as global troubles worsened.

“Governments could consider incentives to encourage overseas workers to remit money home, such as special savings instruments, and they should also discuss currency swap arrangements and other measures to keep their financial systems stable,” it added.

A number of short-term measures have been taken to cushion the impact of the crisis, including monetary easing and fiscal stimulus packages. India had announced a Rs 20,000-crore additional planned expenditure in the current fiscal, refund of certain service taxes, interest subsidy to labour-intensive sectors and extended finance support to various sectors, including infrastructure.

Additionally, the Reserve Bank of India had cut repo rate, the rate at which the central bank lends to banks, for the fifth time since October 20, and the overall cut effected since the global credit crisis intensified added up to 400 basis points. Since September, the central bank had also lowered cash reserve ratio requirements, or the proportion of deposits that banks set aside, by another 400 basis points to inject Rs 1,60,000 crore into the system.

“South Asian countries can weather the global financial crisis by taking both short- and long-term measures to stimulate their economies,” the study said.

“In the long term, South Asian countries need to reduce their fiscal deficits, diversify their economies, step up infrastructure investment and boost intra-regional trade to take up the slack of lower demand from G7 nations,” it added.

“While some countries in South Asia have had relatively less exposure to the crisis from the adverse impacts of capital flows, more than half of the 900 million people in developing Asia who survive on US$1.25 a day live in the sub-region, so any tempering of growth is a serious cause for concern,” said ADB President Haruhiko Kuroda.

The study is being presented as a discussion paper at the South Asia Forum on Impact of the Global Economic and Financial Crisis, a two-day forum being held at ADB headquarters at Manila on March 9 and 10.

The global financial crisis slashed the value of financial assets worldwide by $50 trillion in 2008, said an ADB study on the global financial turmoil. Financial asset losses in developing Asia, which suffered more than other emerging markets, totalled $9.6 trillion, or just over one year’s worth of developing Asia’s gross domestic product, the ADB report said.