BUSINESS STANDARD LATEST UPDATES 21-9-2011
CS A Rengarajan
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kindly go through the delay in decision making in country's top regulator. We need to wait whether it is companies bill, sme exchange, gst, dtc or any other reforms.
ONLY GOD ALONE CAN SAVE THIS COUNTRY FROM DELAYING REFORMS ACTIVITIES
BEST REGARDS
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ASHISH RUKHAIYAR Mumbai, 20 September The Securities and Exchange Board of India (Sebi) is short of senior management. Besides, recent controversies surrounding former whole-time member K M Abraham’s letter to the finance ministry had slowed down the decisionmaking process significantly, said market participants. This was reflected in some of the recent meetings that the finance ministry has had with market participants, including stock exchanges. Participants in the meeting said queries from the finance ministry on progress on the separate platform for small and medium enterprises could not be addressed because Sebi was represented by a northern zone official. Similarly, the takeover code has not been notified though it had been cleared by both the finance ministry and the Sebi over a month before. The vacancies created by the exit of two whole-time directors, M S Sahoo and K M Abraham, who completed their terms, haven’t been filled for two months. At present, there is only one whole-time director – Prashant Saran – with the market regulator. “The working of Sebi has certainly been affected, as the work that was divided among three members is now being looked after by just one,” a Sebi official said. “The Sebi mandate encompasses a lot of segments and it is difficult for one person to look after so many verticals simultaneously,” he added, wishing not to be named. Some reports suggest that former Central Bank of India chairman and managing director S Sridhar, along with Rajeev Agrawal, a 1983-batch Indian Revenue Services (IRS) officer, have been selected as members. A formal notification is still awaited. Also, while three of the four executive directors (ED) — K N Vaidyanathan, J N Gupta and Pradnya Sarvade — have completed their terms, only one ED, J Ranganayakulu, was granted an extension. According to Sebi sources, the three EDs have been replaced by S Ravindran, SRaman and R K Padmanabhan. Interestingly, there has been no formal notification about the appointments of Raman and R K Padmanabhan on the market regulator’s website. Padmanabhan, a Maharashtra cadre IPS officer, is yet to join Sebi, while the other three have assumed their new roles. Saran, the lone whole-time member, is looking after all the verticals till the new members assume charge. According to the Sebi website, Saran is directly in-charge of collective investment schemes, foreign institutional investors and the enquiry & adjudication department. The others are handled by executive directors who report to Saran. As a whole-time member, Sahoo was in-charge of derivatives & new products, legal affairs, enforcement and regulation & supervision of market intermediaries, while Abraham handled corporate finance, investigations, vigilance and integrated surveillance, among other things. Even the court recently remarked in a high-profile case that the affected party should go back to Sebi for a dispassionate hearing, as anew regime was in place. Important issues like SME exchange, notification of takeover code delayed in the absence of senior management THE VACANCIES CREATED BY the exit of two whole-time directors haven’t been filled for two months |
SOMASROY CHAKRABORTY &ABHIJIT LELE Mumbai, 20 September Amid the current uncertain macro-economic environment, inorganic growth seems to be the mantra for multi-national corporations looking to establish a foothold in India. While India Incs quest for foreign acquisitions appears to have slowed in 2011, multinational corporations have intensified their hunt to buy Indian firms, and this has resulted in inbound merger and acquisition (M&A) deals more than doubling in the first nine months this year. “India is received very well. There are issues here like in any other country. But I think the Indian model for private enterprise structure is seen to be very advanced. People see the demography of India, the intellect here, its international perspective, emerging middle class and democracy,” said Alex Thursby, chief executive (Asia-Pacific, Europe and America), Australia and New Zealand (ANZ) Banking Group. According to Dealogic, 281 inbound M&A deals, aggregating $27.5 billion, were announced in the January-September period, compared with 220 inbound deals, with a combined value of $13.4 billion, in the same period last year. BPs acquisition of 21 oil and gas blocks of Reliance Industries for $9 billion in February is the largest deal so far this year. While outbound deal flows have slowed because of uncertainties in the global economic environment, industry players say most Indian companies are still exploring inorganic growth opportunities in foreign markets to expand their operations. “The general macro-trend is there is a slowdown in deal flows, and this would continue for some time. But I think opportunities would materialise in the next one to three years. Indian corporations clearly smell this trend. I think they would be patient now and wait for prices to come down,” Thursby said. He added while deal closures were being delayed, there was no slowdown in India Incs interest to acquire companies abroad. A total of 142 outbound deals, aggregating $9.7 billion, were recorded in the first nine months this year, compared with 175 deals, with a combined value of $23.9 billion, in the year-ago period. Adani Enterprises acquisition of Port Terminals in Australia for $1.97 billion in May is the largest outbound deal so far this year.
“A lot of Indian companies are setting up backward or forward linkages globally. For instance, a company may have power plants in India. So, it is looking for tie-ups with coal mines in Indonesia, Africa or Australia. This business is growing,” said Chanda Kochhar, managing director and chief executive, ICICI Bank. Bankers say M&A deals this year were seen across sectors like financial services, oil and gas, energy, technology and media and telecommunications. They added most of the enquiries on M&A opportunities were about sectors like energy and natural resources. “There is a pipeline of deals being spoken about and negotiated. Natural resources, including coal for energy assets, remain at the top of the corporate agenda for mergers and acquisitions,” said Gaurav Khungar, managing director, Religare Capital Markets. While volatile commodity prices and regulatory barriers are expected to slow deal closures in the short term, most bankers and industry analysts are confident deal flows would rise in the long term. “National and local considerations have taken commodity markets hostage in many countries. This would slow deal-making in the near term. However, demand from emerging nations such as India would drive long-term growth and fundamentals,” said Kameswara Rao, executive director and leader (energy, utilities and mining), PricewaterhouseCoopers, India. Deals Deal value in $ billion Inbound M&As 281 27.5 220 13.4 Outbound M&As 142 9.7 175 23.9 Jan-Sep 2011 Jan-Sep 2010 Source: Dealogic MERGERS & ACQUISITIONS |
| Labour law babel |
The government passed the Contract Labour (Regulation and Abolition) Act in 1970 to eradicate the evil practice. However, in recent decades, it has been considered less evil and more necessary for a liberalised economy. The focus of current legislative endeavours is on unshackling corporate bodies from all impediments. Little attention is paid to updating labour laws. The courts also suffer from dichotomous thinking on labour issues. Last fortnight, the Supreme Court lamented that employers are adopting subterfuges these days to deny the rights of workers. In the case, Bhilwara Dugdh vs Vinod Kumar , dealing with contract workers, it said the employers showed the workers as those of the contractors or that they were merely daily wagers or causal employees, while they were doing the work of the regular staff.On the other hand, some Benches of the same court have been tough on such workers. In the celebrated SAIL judgment of 2001, the court stated that no casual worker has a basic right to claim regularisation. In a recent appeal, Union of India vs A S Pillai ,bandsmen were playing for the Tambaram air force station since 1982. When they asked for regularisation, the Madras High Court allowed their plea. But on government’s appeal, the Supreme Court denied their demand with remarks like these: “In addition to daily wages, they were given allowance for haircuts, washing uniform and, at times, also given breakfast and lunch.” The government can sometimes be maternal, but not a model, employer.In another judgment, the court put the “burden of proof” on casual workers to prove with attendance records that they had been employed for a year continuously. Now go and tell a migrant from Peepli village to gather such evidence, when even the contractor would not keep such records. A new issue came up before the court last week in the appeal case, DIAL vs Union of India .Can labourers working for a state entity claim continuity of tenure and absorption when the job is handed over to a private company? Since privatisation is the inexorable trend, this ruling has some significance, especially in the absence of any legislation.The issue arose in the appeals of the trolley-retrievers at the Delhi airports. Earlier they were working under a contractor for the Airport Authority of India (AAI). They demanded the regularisation and abolition of the contract system since they were working for long years. The government issued a notification abolishing contract labour. Later, the functions carried out by the government undertaking were given to the newly-formed private firm, Delhi International Airport Private Ltd (DIAL) in 2006. The new contractor removed these labourers. This led to writ petitions in the Delhi High Court and the Supreme Court. There were legal wrangles over which was the “appropriate government” (central or Delhi) under the law empowered to issue notifications and other technical issues. The private company argued that it was independent of AAI. On the other hand, the workers contended that the notification abolishing contract labour was applicable to it and they were entitled to absorption in the new outfit. The high court and the Supreme Court ruled that the government has total control over AAI and the latter has control over the new private firm. Therefore, the notification abolishing contract labour was applicable to the private firm also. The Supreme Court stated that if the Centre had not granted permission, DIAL would not be able to carry out functions at the Delhi airports. The entire functioning of DIAL is fully dependent on the grant of permission by the Centre. This ruling has far-reaching implications since the court holds that the private entities that take over the functions in such cases need not be government undertakings. Thus, it would seem that any “undertaking”, even a private one like DIAL, may function “under the authority” of the central government with all consequences. It was argued on behalf of DIAL that “if the intent of Parliament was to make DIAL come under the authority of the central government it would have militated against the basic objective of achieving privatisation.” However, the court noted that according to the agreement between the parties, the “rights and obligations associated with the operation and management of the airport would stand transferred” to DIAL. If DIAL has assumed all of AAI’s rights, it must also carry the burdens. The court warned that a contrary interpretation would allow AAI to circumvent the Centre’s exercise of authority over its work merely by contracting it out to third parties. This is one ray of light in the otherwise bleak field of contract labour. If a private firm takes over the functions of government undertakings, the notifications under the contract labour abolition law would apply to the new employer also, even if the functions are in turn transferred to third parties. Public sector undertakings, railways and even bandmasters employed to entertain armed forces (as in the Tambaram case) can press their claim to regularisation and absorption if they can get the government to issue a notification prohibiting contract labour. The Supreme Court airbrushes rules on contract workers OUT OF COURT MJ ANTONY |
| FINDING A VALUE DEAL |
ABHAY RAO Every market situation has its key phrases. In the present market conditions, experts are often using phrases like “there are great value deals available” and “look at the quality of earnings”. While every financial guru worth his salt gives such advice, what does this really mean and how does it help you become a better investor, is the real question. Ritika Mankar, economist, Ambit, says: “The most important parameters looked at when building our ideal portfolio is, superior quality of earnings, inflation immune sectors and good valuations given the projected earnings.” Joel Greenblatt in his book, The little book that beats the market ,formed a ranking system through which he would pick stocks. There were two fundamental values, return on capital invested (ROIC), the higher the better, and price-to-earnings (P/E), the lower the better, on which he ranked companies. A combination of these two rankings helped him arrive at a list of stocks that proved to generate higher returns over a period of time.Price to earnings (P/E) is very important when it comes to the bottom-up stock picking approach. Vaibhav Agarwal, VP Research, Angel, says: “The Sensex target P/E for FY13 is 14, and every company has its own fair P/E in comparison. In fundamental analysis, one looks at the future outlook and evaluates the company on the basis of numerical factors like growth and profitability. The higher the ROIC and the higher the growth potential of the firm, the higher is the P/E.” For example, in the banking sector, P/E ratios vary greatly and understanding why one is high and another low will help you spot value deals. Public sector banks like SBI are trading at a P/E of 12, while Punjab National Bank is at a P/E of 6.6. Mid-cap banks are trading at a P/E of below five, while the industry average of the large-cap public sector banks is a P/E of 10. This, in comparison to the Sensex P/E of 15, which clearly indicates that public banking sector stocks are down valuation-wise and can, hence, provide a good investment opportunity. Private banks like ICICI are trading at a PE of above 40, while HDFC is at 26 and Axis at 12. “A low PE indicates low confidence, while a higher PE indicates the market is willing to pay more for the earnings of the company. This makes the stocks expensive. In the banking sector, private banks have a higher P/E due to less non-performing asset (NPA) concerns, government intervention, and so, investors are willing to pay more” says Alex Mathew, head of Research, Geojit. On the other hand, FMCG stocks are trading at the 30-35 P/E range, with HUL at a PE of 33 and ITC at a PE of 28. Similarly in the pharma sector, GlaxoSmithKline trading at a P/E of 20 and Pfizer between 15-20 shows that people are willing to pay more for these stocks. “People are willing to pay more for these sectors as they are defensive. In such times, people will always pay more for defensive stocks. Globally, rating agencies have downgraded banks across the world, leaving the sector volatile. However, P/E-wise, PSU banks are very cheap in comparison to private banks, pharmaceuticals and FMCG stocks. While P/E is a good way of evaluating stocks, looking at the quality of earnings to see if a lower P/E is indeed a good opportunity and not reflections of bad performance is important,” adds Mathew. If the company financial statements show that earnings are arising out of high cash flow and conservative accounting policies, the earnings are considered good, while if the earnings come from other sources like inflation, one-time sale of assets or aggressive accounting, the earnings are considered to be of bad quality. Good quality earnings indicate the firm is generating cash flow from its core business and such earnings are considered high on sustainability and low on risk. The quality of earnings is more important when dealing with overvalued companies who show strong earnings due to accounting principles used, but have a low cash flow from operations. STAY UPDATED THROUGH THE DAY, VISIT WWW.SMARTINVESTOR.IN MUMBAI, WEDNESDAY 21 SEPTEMBER 2011 Understanding earnings quality and PE ratios can help you find value deals in this market P/E RATIOS VARY GREATLY IN THE BANKING SECTOR and understanding this will help you spot value deals. PSU banks are down valuation wise and, hence, provide a good investment opportunity |
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Company Secretary, Chennai
email csarengarajan@gmail.com
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