After facing tough couple of years, India’s aviation sector is booming and low-cost operators seem to be getting a greater chunk of the business. While the trend globally has been turning in favour of low cost air-travel as high prices of crude makes mainstream carriers less competitive, in India, the change seems to happening at a rather swift pace.
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Most of the low-cost airlines have been enjoying 5-15% higher load factors compared with their mainstream counterparts, and this is also leading to ambitious capex plans by these companies. Most of the no-frill players are adding aircrafts to their existing fleet and have applications before the government for approvals for future acquisitions.
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In the latest such clearances given by the government, the aviation ministry led empowerment committee has given the green signal for importing 46 new aircraft worth over Rs 19,000 crore by three low-cost carriers – SpiceJet, IndiGo and Jet Lite. While the planes will arrive in a gradual way, some of these at least will be added to the fleet within the current calendar year.
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IndiGo, the largest low-cost carrier in the country has got an approval for 14 A-320s. The Gurgaon-based carrier currently has a fleet of 27 aircrafts and a market share of 16.9% in domestic market. It plans to increase its fleet to 35 within the current calendar year. It had earlier ordered a whopping 100 planes whose delivery is scheduled to begin from 2015-16, and the current orders are in addition to them.
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SpiceJet, another low-cost carrier, has received clearance for 30 Boeing 737-800s at a cost of about $2.7 billion (Rs 12,660 crore). Delivery for these planes will start from 2014. It will however add 8-10 planes, which had been ordered earlier, to its current fleet of 21 aircrafts within the current fiscal. The airline plans to operate 50 aircraft by 2014.
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Another no-frills carrier GoAir has also announced that it was in talks with Airbus to advance the delivery of 10 planes within a year. The Wadia Group-promoted airline currently has an all-Airbus fleet comprising of eight aircraft. While it already has plans to add two new Airbus A320s in the next two months, it wants to get advanced delivery of 10 out of a total order of 20 Airbus aircrafts in next one year.
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Ambitious capex plans as reflected in large number of aircrafts to be acquired by the low-cost airlines reflects their growing market share. Together, these carriers have already cornered nearly half of the market share if we add up the shares of low cost subsidiaries of mainstream carriers as well. Even the stand alone no-frill players have a one-third share of the market. With the air-traffic in the country growing at over 20% annually, the prospects to these carriers are certainly very bright.
India’s services sector slowed down for a second consecutive month in August as the pace of expansion comes down from a record high level seen in June, as reflected in the HSBC Services Purchasing Managers’ Index (PMI) based on a survey of 400 firms. However, even the current reading on the PMI is very robust and consistent with a fast expanding economy.
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The headline seasonally adjusted HSBC Business Activity Index stood at 59.3 in August, falling slightly from 61.7 in July. This was the second successive decrease in the headline figure, even though it continued to signal a very sharp pace of expansion in the country’s service sector.
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Earlier the manufacturing data too had shown some slowdown in expansion in August, although the absolute figure there too remained strong. Overall, the HSBC India Composite Output Index for the month of August stood at 60.3, down from 61.9 in July. However, the latest reading continues to remain consistent with a very rapid pace of growth in the overall economy.
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Looking at the sub-indices, the index of incoming new business received by the service sector firms increased markedly during the month, boosted by the ongoing improvement in global economic conditions as well as strong domestic demand. The survey also revealed that the latest growth was faster than that posted in July. All the six sectors monitored under the survey indicated that new business had risen during the month.
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Further, despite the sharp rise in output recorded during the month, backlogs of work with the service sector companies continued to rise in August. It clearly indicates increasing capacity pressures being faced by the economy. A similar finding was also revealed by the manufacturing PMI, thus indicating that overall economy was under capacity pressures and growth could slow down until the pace of investment picks up.
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In a related inference, the August data signalled a marked increase in input costs faced by Indian service companies. This is an expected development when capacities come under pressure. The latest rise in input prices was driven by higher purchasing costs and wage inflation. The survey indicated that while the rise in costs in August was marginally lower than the previous month, it was nonetheless strong in the context of the historical data.
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Overall, the services sector as well composite business activity seems to be doing pretty well for now. The recent slowdown reflects that capacities are getting filled and therefore pressures on cost side are building up. Commenting on the India Services PMI survey, Frederic Neumann, Co-Head of Asian Economics Research at HSBC said, “Service sector activity, which in India accounts for the bulk of economic output, slowed a little last month. But, monetary officials can hardly afford to relax their guard. Growth remains strong, and there are few signs that input and output price pressures are letting up meaningfully. Both employment generation and outstanding business remain consistent with a robust, ongoing expansion.”
As companies kept up investments in spite of the downturn and seemed more advanced than their counterpart globally it is said that India may lead the second wave of IT adoption.
IBM Corp. has come up with the concerned statement.
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According to the IBM survey, 40% of Indian companies stated that they wanted to be first to take up a new technology, while 11% said they would wait till technology was widely available.
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Moreover, companies have cut back less and have really continued their investments in India which is balanced to lead the second wave of IT adoption whereas small-and-medium businesses (SMBs) are the engines motivating the economic development.
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On the other hand, recession forced 37% companies worldwide to decrease their IT budgets as compared to 15% in India.
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Further, the IBM recognized India as one of its main growth markets and will continue to invest here along with Brazil, China and Russia.
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Moreover, IBM plans to cash in on the business coming from SMBs representing more than 90% of all businesses employing over 90% of the world’s workforce in order to produce more patents than large firms.
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IDFC and Krishak Bharati Cooperative Limited (KRIBHCO)have purchased a stake of 5% each in Indian Commodity Exchange, which jointly promoted by Indiabulls Financial Services and MMTC.
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According to sources, the bourse will apply to Forwards Markets Commission, the regulator, after the completion of the formalities of the shareholding agreement.
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With the latest divestment, the current holding of Indiabulls stood at 40% while MMTC has 26%. The other shareholders include HDFC Bank, Yes Bank and Indian Potash.
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FMC guidelines stipulate a maximum shareholding of 40% in a commodity exchange by an anchor investor.
This has to be reduced to 26% within a period of two years starting with the fourth year from the date of exchange’s recognition.
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Earlier, FMC(Forward Markets Commission) rejected United Stock Exchange’s proposal to pick up 10% stake in Indian Commodity Exchange since it was yet to receive full recognition from capital markets regulator SEBI.
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The bourse is the latest entrant into the commodity futures space and will vie with the predominantly metals and energy bourseMCX and agri bourses NCDEX and NMCE.
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In August, FMC had directed the exchange, which had received recognition from the Ministry of Commerce over a year ago, to offer 10 per cent equity of USE to other competent partners and re-submit the application by September-end.
With all sectors including textile showing recovery, the total export from India is likely to register 10% increase during 2010-11.
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However, the growth during this fiscal (2009-10) would be either flat or marginally negative, although export observed a marginal decrease during the last financial year due to global recession.
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While, it is said that almost all the sectors in India were showing a stimulation or plus-growth, including automobile, plantation and engineering.
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On the other hand, it is said that the economic situation is not really that bad and there is a sign of revival during the last two to three months whereas the year 2010-11 is said to be good for all the sectors, particularly textile, which was feeling the ”cyclic pinch” and that would be back to business in the year.
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Though textile would continue to remain weak in 2009, there could be recovery in the year 2010 and once the demand from the USA and EU improves, it is expected to achieve a reasonable growth 🙂
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However, though there was a steep export growth in textiles and clothing in the first half of 2008-09, there had been slowdown in demand from major markets, USA and EU, due to the global economic crisis.
An expert panel of Securities and Exchange Board of India has proposed disclosure of audited balance sheet on a half-yearly basis by listed companies.
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At present, a listed company discloses audited accounts once a year at the annual general meeting.
This is among a slew of recommendations made by the Sebi committee on disclosure and accounting standards (Scoda).
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“The accounting irregularities at Satyam Computer Services reiterate the need for having greater internal checks and controls in an organisation,” the Sebi committee said in a discussion paper put out on Monday inviting public comments till September 25.
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Sebi will take a final decision on the new disclosure norms proposed by the committee after getting public comments.
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Pinning the responsibility of ensuring the independence of the external auditor and its partners on the audit committee of the company, Scoda has also proposed that the partner of the audit firm of a listed firm be rotated every five years to avoid management-auditor connivance.
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Citing scope for improvements in accounting norms, following the Satyam Computer scam, Sebi had asked Scoda to look into the possibility of carrying out internal checks and balances in firms by external auditors.
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“Sebi panel proposals are expected to bring transparency in the corporate governance.
It is expected to lift the corporate governance standards in the country.
The need to upgrade standards was felt since the Satyam scam hit the market.
The guideline to rotate auditors after every five years is welcomed decision.
The decision to ask listed companies to report audited results twice a year may also lift investors’ confidence in the markets” said Jagannadham Thunuguntla, head of research at SMC Capital.
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Another issue, which Scoda felt may best remain unchanged is prescribing professional qualifications or financial literacy for chief executive officers and chief financial officers of companies.
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The committee suggested that the responsibility of selecting CFOs with adequate qualification be given to the audit committees of companies.
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The Scoda was of the view that the appointment of CFO should be approved by the audit committee, which while doing so shall be required to assess the qualifications, experience and background,” it said.
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Further, in order to prepare India Inc to adopt International Financial Reporting Standards (IFRS) that are expected to take effect from financial year 2011, Sebi had asked the committee to look into the possibility of allowing companies to voluntarily implement the practice.
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The committee has also proposed a uniform timeline for submission of financial results by listed entities.
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It has put forward that listed entities shall be required to submit their quarterly and year-to-date audited and standalone financial results or quarterly and year-to-date unaudited standalone results accompanied by limited review report of the auditor within 45 days from the end of the quarter.
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This is applicable to all quarters except the last one.
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Raising money through the qualified institutional placement (QIP) route is expected to get tougher in coming days as almost 75% of the QIPs made in 2009 have given negative returns with 10 out of 13 of them trading below their offer prices.
With the success of Unitech, which raised a total of Rs 4,400 crore in two tranches in 2009, QIP has become the most favoured instrument for fund raising by corporates. So far in the calendar year 2009, 13 companies mobilised Rs 12,500 crore through the QIP route.
In view of the current down trend in the equity market where majority of the QIPs made have seen significant erosion in value, experts argue that raising funds through this route would either slow down or get delayed.
A study by Crisil Equities shows that total return on investments by all the QIPs is marginally negative despite significant gains registered from the first QIP of Unitech, which has delivered a positive return of around 75%. The study reveals that around one fourth of the QIPs are trading 20% below their offer prices.
In absolute terms, Unitech’s second tranche of QIP of Rs 2789 crore at an offer price of Rs 81 has lost over Rs 450 crore. However, Unitech’s first QIP of Rs 1,620 crore in April 2009 at an offer price of Rs 38.5 is the largest wealth creator for QIPs with total gains of Rs 1220 crore.
Going forward, another 23 companies have lined up to raise Rs 43,887 crore through the QIP route. Of this, GMR Infrastructurehas already withdrawn its QIP of Rs 5,000 crore owing to poor investor response.
Citing the example of GMR Infrastructure, Jagannadham Thunuguntla, head of equity, SMC Capital Ltd, said: “Only good companies with reasonable valuations will be able to successfully complete their QIP process. Whatever valuations the companies are offering to potential investors should also be justified by their fundamentals”.
However, experts also argue that the significant fall in the prices of QIPs is also on account of profit taking by qualified institutional buyers (QIB).
“Since there is no lock-in period for investment in QIPs, most of the institutional investors have sold heavily after subscribing to the QIPs making hefty profits”, said a senior executive at a leading institutional broking firm.
Unitech, through its two QIP issues, raised around Rs 4,400 crore, accounting for 35% of the total QIP amount. Among sectors, the real estate, with five companies, has raised a total of Rs 9,500 crore, 76% of the total QIP amount.
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