IPOs: here’s how much money India Inc raised in May

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Money raised through public issues in 2016 so far is three fold higher compared to the same period in 2015.

Indian companies raised Rs 6,744 crore through initial public offerings (IPOs) during the first five-and-a-half months of 2016, according to Prime Database.

The year so far witnessed 11 companies making their debut on the exchanges, with healthcare, finance and investments firms dominating  issuances.

Although all the IPOs were oversubscribed, only five of the 11 companies reported listing gains. Firms such as Ujjivan Financial Services, Thyrocare Technologies and Team Lease Services saw an overwhelming response, with their issues being oversubscribed between 38% and 41%.

The public issue of Mahanagar Gas, which closed last week, was oversubscribed 65 times. The IPO, which aimed to raise R1,040 crore, was fully subscribed on the first day. The public issue of Bangalore-based staffing firm Quess Corp, which aims to raise R400 crore, will open on Wednesday.

Source: http://www.financialexpress.com/article/markets/indian-markets/firms-raise-rs-6744-crore-via-ipos-till-mid-may/300205/

Audit giants see dominance waning

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India’s audit landscape is undergoing a quiet change as the new rules for time-based rotation of auditors gather pace.

Early audit changes this year indicate the larger entities, such as Deloitte’s network, could face some pressure on their dominance. And, those lower down the order could gain ground. Leading firms are looking at increasing the focus on quality and are exploring new opportunities, such as private equity-backed ones in the unlisted space. Smaller entities such as Walker Chandiok, part of the Grant Thornton network, have ramped up their staff strength to handle new clients.

Close to 400 companies listed on the National Stock Exchange (NSE) have already changed auditors over the past three years, with clients changing hands among top audit firms. There is also pressure on pricing as the war for market share begins to intensify among top audit firms. This has resulted in a spike in demand for experienced auditors, with joining remuneration seeing 20-30 per cent jumps.

Audit giants see dominance waning
The revamped Companies Act of 2013 said every Indian company with a paid-up equity capital of Rs 20 crore or more was required to replace auditors after two five-year terms in succession. The law had given a three-year transition period for those which had to change auditors, ending March 2017. In the current financial year, 2016-17, around 40 NSE-listed companies have already switched to new auditors. More announcements are expected over the coming three months, shows data from Prime Database. In 2014-15 and 2015-16, a total of 339-NSE listed companies had settled for new auditors.

“We will be rotating off some of the larger companies. Simply because of the number and size of listed companies we audit, there will be changes in our audit market share,” said Shyamak Tata, partner, Deloitte Haskins Sells. He said large-scale changes in their portfolio were only expected from the third year onwards.

The Deloitte group’s network of audit companies is expected to see the largest churn. It has the biggest number of marquee audit clients. The network earned Rs 300 crore in fees for the year 2014-15, representing 15 per cent of the total pie of the Rs 2,000 crore audit fee market for 1,451 NSE-listed firms. It also audited the highest number of listed entities, at 149. The EY network made Rs 121 crore from the 108 companies. The PwC network audited 65 listed ones but had the lowest fee income among the ‘Big Four’ in audit, of Rs 65.6 crore. The KPMG network audited the lowest number of listed entities, at 58; however, it earned more than PwC at Rs 99.4 crore. Companies are still in the process of reporting the FY16 numbers.

Churn on
Early numbers suggest this pecking order is already going through a churn. A Business Standard analysis of data provided by Prime Database showed of the 41 auditor changes reported so far this year in listed companies, the KPMG network was the biggest gainer, with 11 new firms for the financial year ending March 2017. It was rotated out of two existing clients, a net gain of eight for FY17. The EY network added six and lost two, while Walker Chandiok gained a lone company. The PwC and Deloitte networks have lost more than they’ve gained so far this year. At the end of the changes, other smaller audit firms had 23 clients, up from 18 in FY16, among these 40 companies.

Grasim, Cipla, Biocon, Vedanta, Hindustan Zinc, United Spirits and Century Textiles are some of the large companies that have reported auditor changes for the new financial year.  In FY16, as many as 168 listed companies changed their auditors. The Deloitte network was the top gainer among the first five, gaining 17 and losing 11. The KPMG network was also a net gainer, with seven gains and four losses. EY, PwC and Walker Chandiok lost more than they gained.

In FY15, when 171 companies changed auditors, Walker Chandiok’s client list swelled by eight. While the EY network and Deloitte registered a net gain of one each, the KPMG and PwC networks recorded a net loss of four and one, respectively.

Strategy
Deloitte, expecting a strong attack on its dominance, is looking for greener pastures. “We are large in the listed company space, and have a majority share across industry sectors.  Our audit breadth and experience in this changing regulatory environment provides us, currently and over the next two-three years, an opportunity to provide audit services to untapped listed and unlisted entities, with a bias in favour of unlisted clients,” said Tata.

Other large entities are also gearing up for the transition. Russell Parera, partner, Price Waterhouse Chartered Accountants LLP, said his network had embarked on a transformation programme focussing on people, technology and processes for close to two years. “We have taken significant efforts in training our people for this change. Also, with rotation kicking in, it is going to be important to focus on investing in relationship building.”

The PwC network also bets on technology as another aspect, which will go a long way in these ever-evolving market scenario. “Today, technology has become a crucial enabler, with more data audits getting conducted. It is also relevant in cross border and multi-location audits to ensure consistency. We as a firm have been preparing for this change,” Parera added.  Tata of Deloitte spoke of pricing pressure in certain pockets. “We are seeing this as a section of the market looks to gain market share.  There will be some short- term blips. However, with continuing investment in innovation and quality, which will lead to enhancing value to clients, over the short term, this will correct. We already have a large pool of audit talent. We are looking at consolidating and not dramatically increasing the headcount. Audit will remain the primary identity of our firm and, with our focus on quality, we will retain our leading position in the overall  space.”

Impact
According to Akhil Bansal, deputy chief executive of KPMG India, with European audit rotation also coming into effect, the impact of Indian mandatory company rotation regulations will be felt around the globe. “The choice of the audit firm in India might influence the choice in Europe and other geographies,” he added. Bansal said the impact of mandatory firm rotation will also be felt on other services, including internal audit, due to stringent independence requirements. “It is important that the companies make their choice of audit firm early, since the best resources will be committed to clients who are first off the block,” he said.

Audit companies have been preparing for this, with investment in personnel, training and ramping up headcount numbers. For instance, the Grant Thornton network plans to double its auditor numbers across its network from 1,500 to 3,000. Vishesh Chandiok, national managing partner, Grant Thornton India LLP, said: “Several local Indian firms are very competent and the belief that only us international firms are the option is misplaced. Not all 50,000 firms for each company but certainly 50 firms can audit most companies, not only four of five firms.”

The EY group, which has 3,000 auditors across its network, added 400 over the past 12 months. “Internally, our focus continues to be on strengthening our teams with more hiring, greater investments in training, sharpening technical and industry capabilities  and increasingly, using more technology and, data analytic tools when performing audits,” said  Sudhir Soni, national leader, SR Batliboi, the Indian member-firm of EY Global.

Most audit companies have resorted to internal promotions and inducting of new talent to expand resources.

With the threshold for audit rotation being low, most audit companies are looking at tapping the unlisted private audit space in a big way. That’s a space the Deloitte network companies plan to play the game hard, indicated Tata. The client churn among audit firms is expected to last over the next two-three years, before it stabilises.

Source: http://www.business-standard.com/article/companies/audit-giants-see-dominance-waning-116062600777_1.html

Taxmen told to step up efforts for black money window success

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Income Tax Department has asked its officers to make “all out efforts” to attract potential declarants under the domestic black money window by assuring them of confidential and hassle-free disclosures.

In order to give wide publicity, the CBDT has also suggested putting up posters about the Income Declaration Scheme-2016, at places frequented by potential declarants, like club houses, posh markets, showrooms of high end products.

The four-pronged strategy prepared by the CBDT for the success of the scheme, includes single point contact to ensure confidentiality, setting up of facilitation centres across the country, giving wide publicity and monitoring at the highest level.

Finance Minister Arun Jaitley in Budget had announced a four-month window under the Income Declaration Scheme 2016. The scheme, which opened on June 1, allows domestic black money holders to declare ill-gotten wealth and come clean by paying a tax and penalty totalling 45 per cent.

“All out efforts are to be made to ensure the targeted taxpayers are well informed about the scheme and are adequately guided and facilitated for filing declarations so that they can avail maximum benefits under the scheme, which is under highest consideration of the government during the coming months,” the CBDT said in an office memorandum.

In order to ensure confidentiality of the declarants, the Central Board of Direct Taxes (CBDT) has said only Principal Commissioner or Commissioner Income Tax should act as a “single point of contact” for interacting with the declarants.

“Such Pr CIIT/CIT should be the one and only point of contact with the respective declarant. The idea is to ensure the declarant is not exposed to multiple persons in the office so that his confidentiality is not compromised and he is able to file the declaration in a hassle free manner,” it added.

The detailed action plan for the success of black money disclosure scheme was discussed at the annual conference of tax administrators last week.

In its strategy, CBDT has asked Principal Commissioners and Commissioners to provide all “procedural facilities” at the time of disclosure so as to avoid additional interaction with anyone else in the office.

“All records related to IDS-2016 must be kept in the personal custody of the respective Principal CIT /CIT officer in a safe and secure manner,” it said, adding officer with “good inter-personal skills” be deputed as ‘Facilitation Officer’ to answer queries related to the scheme.

In every city where Principal Commissioner is stationed, a “facilitation centre” in the nature of help desk may be opened for disseminating information about the scheme.

The CBDT has also asked its senior officers to hold “frequent meetings” with trade and industry bodies and professional associations, besides organising town halls and seminars.

In order to step up publicity for the scheme at local level, tax officers should disseminate information through posters in regional languages, stalls at local fairs.

In order to ensure monitoring at the highest level, CBDT said ‘IDS Banner’ will become functional next week on its website where the officers would upload their meeting details.

This will help compare the progress made in organising the campaign.

Last year the government came up with a similar scheme for persons having unaccounted black money abroad. Disclosures during that window were charged with a total tax and penalty of 60 per cent.

A total of Rs 4,147 crore of undisclosed wealth was declared during the 90-day foreign black money compliance window that ended September 30. At 60 per cent (30 per cent tax and 30 per cent penalty), the government got a net tax of Rs 2,500 crore from the declarations.

Source: http://www.financialexpress.com/article/economy/taxmen-told-to-step-up-efforts-for-black-money-window-success/294763/

PM Modi to launch works in 20 smart cities

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Execution of works in 20 smart cities will kick-start from June 25 with Prime Minister Narendra Modi launching 14 projects in Pune, while 69 others will commence in other parts of the country entailing a total cost of Rs 1,770 crore.

Marking the first anniversary of the announcement of the government’s flagship programme, Modi will launch the ‘Smart City Mission’ projects from Pune’s 5,000-capacity Shiv Chatrapati Sports Complex.

“Prime Minister Narendra Modi will launch Smart City projects on June 25, 2016, kick-starting execution of Smart City Plans of 20 cities selected in the first round of ‘Smart City Challenge Competition’,” Urban Development Ministry said in a release.

Apart from the Pune’s projects, as many as 69 such works will be launched on the same day in the other ‘smart cities’ entailing a total investment of about Rs 1,770 crore, it added. These projects are related to solid waste management under Swachh Bharat Mission, water supply projects, sewage treatment plants and development of open and green spaces under Atal Mission for Rejuvenation and Urban Transformation (AMRUT).

It would also include housing projects for urban poor under Pradhan Mantri Awas Yojana and area development and technology based pan-city solutions under Smart Cities Mission, the release said. Modi will also inaugurate ‘Make Your City SMART’ contest, aimed at involving citizens in designing smart cities, with a reward ranging from Rs 10,000 to Rs one lakh for winners.

“Suggestions and designs suggested by the citizens will be duly incorporated by respective smart cities,” the release said. The prime minister will also inaugurate ‘Smart Net Portal’ which enables the cities under different urban missions to share ideas and solutions for various issues during the implementation of various missions. On the occasion, all the first batch of 20 smart cities under Smart City Mission will be linked through video-conferencing. These 20 cities have proposed a total investment of Rs 48,000 crore in area development and pan-city solutions.

Some of the projects to be launched include New Delhi Municipal Council area where mini-sewerage treatment plants, 444 smart classrooms, bio-methanation plant, WiFi, smart LED streetlights, city surveillance and command and control centre would be initiated. The function will be attended by Union Minister M Venkaiah Naidu, Maharashtra Governor C Vidyasagara Rao and Chief Minister Devendra Fadnavis, among others. Besides Maharashtra’s Pune, other cities whose projects would be launched include Ahmedabad (Gujarat), Bhubaneswar (Odisha), Jabalpur (Madhya Pradesh), Jaipur (Rajasthan), Kakinada (Andhra Pradesh), Kochi (Kerala) and Belagavi (Karnataka).

Source: http://indianexpress.com/article/india/india-news-india/pm-modi-to-launch-works-in-20-smart-cities-on-saturday-2871606/

India must activate ‘stalled engines’ to sustain 7.6% growth: World Bank

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India will maintain its growth rate of 7.6 per cent GDP growth in 2016-17, which would accelerate to 7.7 per cent in 2017-18 and 7.8 per cent in 2018-19, the World Bank said on Monday.

 

But for this, India will need to “activate the stalled engines”, including agricultural growth and rural demand, trade and private investment, while ensuring demand from urban households and public investments.

 

In its report ‘India Development Update- Financing Double Digit Growth’, the World Bank said the economy’s potential growth rate is about 7.4 per cent to 7.5 per cent.

 

“The outlook for the coming year is favourable and robust,” said Frederico Gil Sander, Senior Country Economist, World Bank, and main author of the report.

 

The report, also prescribed means for India to attain the elusive double-digit growth. This would depend on various factors, including higher participation of women in the labour force, productivity growth such as business environment reform agenda and GST as well as a pick-up in private investment.

 

The World Bank’s forecast is however, not as optimistic as the Finance Ministry that is eyeing 8 per cent growth this fiscal after 7.6 per cent growth last fiscal.

 

However, Onno Ruhl, Country Director, World Bank (India), said improved global prospects would also be necessary for double-digit growth in the domestic economy.

 

The report also warned that near-and medium-term risks stem from the banking sector and “its ability to finance private investment which continues to face several impediments in the form of excess global capacity, regulatory and policy challenges, in addition to corporate debt overhang”.

 

It has also suggested two key reforms in the financial sector — accelerating the ongoing transformation of banks to become more market oriented and competitive; and also to address the problem of non-performing assets (NPAs).

 

“India’s financial sector has performed well on many dimensions and can be a reliable pillar of future economic growth,” said Sander.

 

RBI top-level changes

 

While urging for more reforms in the banking sector such as giving fresh capital to banks for governance reforms or giving them tools to manage stress in their balance sheets, the World Bank declined to comment on the impact the top-level change at the Reserve Bank of India (RBI) will have on these measures.

 

“We respect the RBI Governor’s decision to return to academia. India has a long history of sound macro-economic policy making and effective and conservative supervisor. There is no reason to expect that it will change,” said Ruhl when asked whether the decision by RBI Governor Raghuram Rajan to not seek a second term would impact banking reforms.

 

Source: http://www.thehindubusinessline.com/todays-paper/tp-news/india-must-activate-stalled-engines-to-sustain-76-growth-world-bank/article8753219.ece

India opens Foreign Direct investment (FDI) floodgates

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In what showed a mindset shift among India’s policymakers, the government on Monday opened the floodgates for foreign direct investment (FDI) by easing the terms for nine sectors

In what showed a mindset shift among India’s policymakers, the government on Monday opened the floodgates for foreign direct investment (FDI) by easing the terms for nine sectors. Showing scant signs of legacy inhibitions, it virtually paved the way for even foreign airlines to acquire their Indian counterparts, removed the condition of domestic access to state-of-the-art technology for 100% FDI in the defence sector and put in abeyance the fractious 30% local sourcing norm for FDI in single-brand retail of advanced-technology products. graph 2

Despite the local pharma industry’s oft-expressed fear of being swamped by Big Pharma, foreign firms can now take majority (up to 74%) ownership in Indian drugmakers via the automatic route, which could again catalyse big-ticket M&A activity in the sector.

With the relaxations in the aviation sector, even a foreign airline could acquire 100% ownership in an India airline company by working in concert with a related party, according to some analysts. For example, a Qatar Airways could acquire a GoAir by directly picking up a 49% in the Indian firm and lapping up the balance equity through the West Asian nation’s sovereign wealth fund, Qatar Investment Authority.

Analysts, however, said the government seems to have tightened the sourcing rule in single-brand retailing, instead of giving a blanket exemption from such a rule for entities having “cutting-edge” technology, as was the case earlier. For instance, Apple will be exempted from the local sourcing rule for three years and have a relaxed sourcing regime for another five years if it wants to set up its own retail store, as its technology has already been described as “cutting edge” by a government panel. However, the company will still have to start local sourcing from the fourth year itself, thanks to the insistence of the finance ministry, which wanted that the Make in India programme get a boost. Similarly, Chinese company LeEco will be subjected to the same conditions if its claim of having “cutting edge” technology is endorsed by the panel headed by department of industrial policy and promotion secretary Ramesh Abhishek. However, another Chinese smartphone maker, Xiaomi, which recently withdrew its application for such a waiver, will have to comply with the mandatory 30% sourcing rule from the beginning should it wish to set up its own retail store.

graph

Commenting on the new FDI policy for airlines, Amber Dubey, partner and India head of aerospace and defence at KPMG in India, said: “The avoidable controversies on settling ‘ownership and control’ issue is now over. Foreign airlines can now focus on the customers and competition rather than wasting time on legal and regulatory issues.”

“The likely increase in competition will bring down prices and enhance air penetration in India, both international and domestic. Indian carriers can now look for enhanced valuations in case they wish to raise funds or go for partial or complete divestment,” he added.

Calling the new norms a “bit tricky”, Amrit Pandurangi, senior director, Deloitte Touche Tohmatsu India, said, “Foreign airline investment is restricted to 49% and FDI investment in this sector has been opened up to 100%, so if the beyond the portion of the equity is by a related entity, then that needs to be tested.”

Among domestic airlines, the Rahul Bhatia-controlled Interglobe Enterprises holds close to 43% in IndiGo, Ajay Singh has a 60% stake in SpiceJet and Naresh Goyal holds 51% in Jet Airways. While Tata Sons holds 51% in both Vistara Airlines and AirAsia India, GoAir is wholly owned by the Wadia Group.

In defence, the decision to scrap the condition of access to “state-of-the-art technology” for FDI beyond 49% (through government route) will make it easier for foreign investors to invest in India. Already, Russian firm Kalashnikov is reportedly looking for local partners for manufacturing in India. Similarly, Swedish defence major Saab is learnt to be looking at more than 49% FDI in defence in its joint venture with a local partner to make the Gripen aircraft in India.

The government’s move to allow 100% FDI through the automatic route (earlier it was up to just 49%) in the broadcast carriage industry, comprising teleports, cable, direct-to-home (DTH) players, HITS (head-end-in-the sky) and mobile TV operators will provide a breather to the cable industry which has been struggling with the process of digitalisation of cable TV. The government has also allowed 74% FDI (49% under automatic route and through government approval beyond this ceiling) in private security agencies. Earlier, only 49% of FDI through government route was allowed.

Also allowed now is 100% FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture under the automatic route under controlled conditions. It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.

“For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, it has been decided that approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted,” a PMO statement said..

Monday’s is the second largest FDI liberalisation initiative by the Modi government, after the steps taken in November 2015. Prime Minister Narendra Modi tweeted: “In two years, Govt brings major FDI policy reforms in several key sectors… India now the most open economy in the world for FDI; most sectors under automatic approval route.” He added: “Today’s FDI reforms will give a boost to employment, job creation & benefit the economy.”

In what seemed to indicate that the government’s intention was indeed to let foreign airlines acquire Indian firms and thereby augment their capital and fleet strength for the benefit of air travellers, economic affairs secretary Shaktikanta Das said that Monday’s reforms in the sector were a “game changer”.

India’s FDI inflows increased to $55.5 billion in FY16 from $36 billion in FY14. Net FDI inflows stood at $36 billion in FY16 compared with $32.6 billion in FY15.

Commerce and industry minister Nirmala Sitharaman, however, rejected assumptions that the government decided to announce so many FDI policy reforms in one go to divert public attention from RBI governor Raghuram Rajan’s decision to not continue at the central bank after his current tenure ends on September 4. The reforms are a result of months of deliberations among various departments and are not announced in a hurry to divert attention, she affirmed.

Source: http://www.financialexpress.com/article/economy/india-opens-fdi-floodgates-apple-to-qatar-airways-gain-but-grey-areas-remain/291429/

HDFC Bank launches SME e-bank

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HDFC Bank, the country’s second largest private sector lender, has launched a digital bank for its small and medium enterprises  (SME) customers. It aims to grow its market share in the hinterlands with this.

“It takes away the hassle of physical availability of a relationship manager and makes banking process faster. We expect this service to take off in a much better way in smaller towns and the hinterlands, as it will save time and manpower. It will help people live in the areas where there is no bank branch close to their home,” said Aseem Dhru, head, business banking. This comes at a time when the bank, traditionally known for its retail  (individual) offerings, has started focusing  on growing its corporate book. With this, the bank has managed to cross the Rs 1-lakh-crore mark in its corporate book for the first time in FY16, more than double the Rs 47,000 crore three years ago.  However, on the business banking side, the bank had seen some pressure on asset quality and had checked the growth in the last few quarters.  Dhru said despite this, the bank has been growing its business banking book at a faster pace than its peers.

“At the end of December 2015, lending to SME sector has seen de-growth by five per cent but HDFC Bank has grown its SME lending by 29 per cent. So, we are very bullish on this segment and looking at increasingly reaching out to rural and semi-urban areas in a big way.”

With credit growth in the corporate sector around single digits annually, banks had reduced lending to the the sector because of their dependency on large companies for payments.

However, bankers say SME players have started reducing concentration risk by focusing on only a few corporate players and have been broad-basing their growth , giving the banks the ability to lend to them more comfortably.

Source: http://www.business-standard.com/article/finance/hdfc-bank-looks-to-grow-market-share-in-hinterland-with-its-sme-e-bank-116061900519_1.html