More breathing space for large, overleveraged groups

l Equity Research l India l Banks l
11 March 2014
India financials
More breathing space for large, overleveraged groups for now
 We met key lenders to gauge the impact and the quantum of assets sold by stressed groups to deleverage.
 From our discussions, we conclude that most large stressed groups that investors are concerned about have raised
enough liquidity to service their debt obligations for the next 9-12 months, either by selling assets or getting loans
refinanced. Banks will continue to treat these as standard loans.
 Given that large groups have managed to raise liquidity for the next few quarters, NPLs and restructured loans will
remain confined to the small to mid-size corporates.
 What happens beyond 9-12 months to the large groups depends on how investment demand picks up post elections.
If we get a stable, pro-reform government that is willing to end the policy paralysis, most of these accounts could get
into better shape. If policy paralysis continues, some of these loans could slip.
 Corporates have sold assets worth 13% of debt in the past two years and assets worth 12% of debt are on the block.
Their debt accounts for 13.9% of system loans. Factoring in all sales, the leverage of these groups still remains high
at 8.9x and the proportion of their debt to system loans drops, but still remains high at 11.7% against 13.9% earlier.
 Remain cautious. While the liquidity infusion comes as a relief, it is only a short-term solution. ICICI Bank, and HDFC
Bank remain our key picks. We maintain UP on SBI, BoI. Within PSU banks, we prefer BoB and PNB relatively.
Click for The Scoop
Assets sold form c.13% of total debt, many
more on the block
Asset sales gathering momentum but leverage remains
high
Assets sold in the past 12-18 months form c.13% of the total
Refinancing has helped in a big way: We find that
refinancing has contributed a higher proportion than asset
sales to the fresh liquidity created by these groups. Media
articles have pointed to refinancing and dollarization of debts
of large groups – Essar, Jaypee, and Aircel.
(INR bn)
400
Mahrukh Adajania
Nikhil Rungta
[email protected]
+91 22 4205 5903
[email protected]
+91 22 4205 5933
10
360
7
8
7
5 Post sale
124
200
5
-
FY12
FY13
11MFY14
Asset on block
Debt/EBITD
A continues
to remain
high
67% of assets sold are from power and oil & gas sectors
5.2%
Click here to get The Scoop, an audiovisual summary of the
report.
602
11
10
7
The bottom line
policy reforms are a must and the pace of asset sales needs to
accelerate. We need more deals like the benchmark sale of
two power plants of the Jaypee group to Abu Dhabi-based
Taqa.
Debt / EBIDTA (Post-sale)
15
12
11
600
3.5% 2.5%
Refinancing and asset sales are short-term solutions
Refinancing and asset sales have taken care of near-term debt
obligations. Nevertheless, these groups’ leverage still remains
high. For a long-term solution, the economic growth needs to ,
Debt / EBIDTA (Pre-sale)
(x)
outstanding debt of these groups. Twelve business groups
have sold assets worth more than INR 549bn. In addition, 16
large groups with total debt of INR 5.2tn have put assets worth
INR 602bn on the block.
Assets sold
800
2.3%
0.2%
13.0%
5.5%
6.1%
20.4%
7.0%
26.5%
1.8%
6.0%
Power (Gas)
Power (Hydro)
Power (Wind)
Mine
Oil & gas
Cement
Real estate
Roads
Hotels
Airport
Telecom
Port
Others
Source: RBI, Standard Chartered Research
Did you know… All large groups have raised at
least INR 25-30bn of fresh liquidity to service their
debt for 3-4 quarters
Important disclosures can be found in the Disclosures Appendix
All rights reserved. Standard Chartered Bank 2014
http://research.standardchartered.com
Equity Research l India financials
Asset sales faster than ever before but still
low relative to total debt
According to a senior banker we met, “All large overleveraged groups, except one,
have raised at least INR 25-30bn of liquidity through a combination of asset sales
and refinancing to meet their short term debt obligations. Longer term, the new
government, irrespective of who comes to power, will have to focus on policy reforms
to revive investment demand”.
Summary of key takeaways from our discussions with large corporate lenders:
 Banks have been putting pressure on large corporates to deleverage through
asset sales.
 While there are buyers for some assets such as operational road projects, there is
little demand for assets belonging to the telecom and thermal power sectors that
remain stressed.
 With pressure from banks, borrowers have brought down their inflated expectations
from asset sales. However, the buyers too have started bargaining hard.
 Given that sale of assets is time consuming, banks have in the interim done needbased refinancing for some of these groups so that they can take care of their daily
funding requirements and service debt obligations.
 We gather that banks will use new RBI guidelines on early resolution of debt mainly
to resolve stress in the mid to small corporate loans not the large overleveraged
groups. Banks say that they have been using a similar mechanism for the large
overleveraged groups already, even before these guidelines came into force.
Large groups have sold assets worth 12.7% of debt; leverage still remains
uncomfortably high: Indian corporates have sold assets worth INR 549bn over the
past 12-18 months, amounting to 12.7% of their debt. Most of these sales have been
to other companies (domestic and international) in the same sector. A few of them
have sold stakes to private equity players. Assets sales have brought about a
meaningful reduction in debt of the power business of the Jaypee group. However,
for most other companies, leverage will still remain high after sale of assets. The
collective post sale debt to EBITDA for the groups that sold assets remains high at
8.8% compared with 10.1% pre-sale.
Figure 1: 67% of assets sold belong to power and oil
3.5% 2.5%
2.3%
Power (Gas)
0.2%
13.0%
Power (Hydro)
5.2%
Figure 2: 97% of the total assets sold has been to players
in the same sector
2.8%
Power (Wind)
Mine
5.5%
Oil & gas
6.1%
20.4%
Sold to companies in same sector
Cement
Real estate
Sold to PE players
Roads
7.0%
Hotels
1.8%
6.0%
26.5%
Airport
Telecom
Port
Others
Source: Company, BSE India, Live Mint, The Economic times, Business Standard, NDTV,
Standard Chartered Research
11 March 2014
97.2%
Source: Company, BSE India, Live Mint, The Economic times, Business Standard, NDTV,
Standard Chartered Research
2
Equity Research l India financials
Two landmark deals, but more needed: Two recent deals are noteworthy and
chunky: the sale of oil assets by the Videocon group amounting to USD 2.48bn, and
the sale of two hydro power plants amounting to INR 105bn by the Jaypee group.
Videocon and Jaypee account for 52% of the
total assets sold in the last 12-18 months
Figure 3: Asset sales by large groups
Majority of the assets have been sold in the last 9-10 months
Asset (s) sold
INR bn
Asset (s) sold as a % of pre-sale debt
%
Debt / EBITDA (pre-sale)
x
Debt / EBIDTA (post-sale)
x
Videocon
144.5
35.2
29.9
19.4
Jaypee
143.0
22.4
9.2
7.1
GMR
99.9
23.4
12.1
9.3
DLF - FY11
5.4
2.3
5.5
5.4
DLF - FY12
36.2
12.1
6.7
5.9
DLF - FY13
29.2
9.4
7.9
7.1
Tata Power
31.0
8.1
6.4
5.9
IVRCL
22.0
33.3
20.8
13.9
Adani
12.5
1.5
11.9
11.7
R Com
12.0
3.4
4.4
4.2
Lanco
6.5
1.5
23.7
23.4
Suzlon
3.8
2.5
(9.4)
(9.2)
Tata Com
1.9
1.0
5.5
5.4
Punj Lloyd
1.2
1.8
5.7
5.6
549.2
12.7
10.1
8.8
Group
Total
Note: Details of assets sold by these groups is available in Appendix 1.
Source: Company, BSE India, Live Mint, The Economic times, Business Standard, NDTV, Standard Chartered Research
Figure 4: Putting asset sales in perspective of total system loans
Factoring in all sales (past and
pipeline) the proportion of their
debt to system loans drops, but
still remains high at 11.7% against
13.9% earlier
INR bn
Debt of groups that have / will sell assets, INR bn
Total system debt
% share
7,427
53,464
14
Source: Standard Chartered Research
Jaypee Power deal is an ideal benchmark for lenders: The sale of assets by the
Jaypee group is an ideal case for banks. Banks have managed to convince the
promoter to sell two profitable hydro power plants. The assets are being sold to a
consortium led by Taqa, an international energy and water company based in Abu
Dhabi. Sale of core assets by a company is unprecedented in India. We believe this
might be achieved because the debt was concentrated with a few banks with the lead
bank having a high share of the total. In our view, the lead bank also holds a
disproportionate share of the promoter’s equity through pledge of promoter shares,
which helped in the quick resolution of stress. In the case of Jai Prakash Power, the
promoters have pledged 97% of their equity in the company to lenders giving lenders
a big say in the resolution of debt related issues.
The huge sale of oil assets by Videocon was touted as one of the best deleveraging
deals. The deal was announced in June 2013, before Videocon’s annual report for
FY13 was available. From the latest annual report, we find that the total debt of
Videocon has risen sharply from INR 273bn as of December 2011 to INR 411bn as of
30 June 2013. On the higher base, the sale does not look as attractive as it did on old
debt numbers.
11 March 2014
3
Equity Research l India financials
Can banks repeat this feat? While more such deals are required to deliver
meaningful deleveraging, it will not always be easy for banks to replicate these deals,
because the loans and the consequent promoter pledges may not be concentrated
with a few banks.
Figure 5: Pledged promoter holdings are very high for some companies
% of promoters holding pledged
100
Mar'12
Dec'13
90
80
70
60
50
40
30
20
10
Jaiprakash
Associates
Tata Power
Tata Com.
Punj Llyod
Ramky Infra.
Adani
Enterprises
Dishman
Pharma
Bhushan
Steel
JSW Steel
Essar Oil
GMR Infra.
NCC
Videocon
Lanco
Infratech
Suzlon
Energy
Jaypee
Infratech
Unitech
Jaiprakash
power
-
Source: BSE, Standard Chartered Research
Why have asset sales been slow?
80-90% of promoter
holding pledged
While the pace of asset sales has picked up, it is not enough to reduce leverage in a
meaningful way. We list the reasons for this:
Not enough takers for all asset classes
Banks point out that while there is meaningful demand for operational road assets,
demand for many assets classes remain weak – especially thermal power, small
steel plants and telecom. Thermal power, which is the most stressed sector, has few
takers because of lack of availability of coal. State-owned NTPC has recently shown
interest in buying operational thermal plants. Given its free cash, it could buy at best
2-3 such plants. Any acquisition of a private thermal plant by NTPC can only happen
after the elections given that NTPC is state owned.
Promoter expectations high at the start, now buyers know they can bargain
Two years ago when banks appealed to promoters to start disposing off assets, their
expectations were very high. With a deteriorating macro and the RBI insistent that
banks resolve stress quickly, promoters have moderated their expectations. But
buyers too have become choosy given the huge macro risks.
High pledges only in a few: The proportion of promoter equity stake pledged to
banks is high only in a few cases. Here, banks have started exercising pressure on
promoters to sell productive assets.
Debt/EBIDTA will
reduce only marginally
after fresh asset sales
in the next two years
11 March 2014
More assets on the block, but high leverage will still remain an issue post sale:
The pace of assets sales is likely to accelerate over the next 12 months. Companies
have already announced plans to sell assets worth INR 602bn, amounting to 11.6%
of their debt. Even with these asset sales, their leverage is likely to remain high. After
factoring in asset sales, debt/ EBITDA of these groups is likely to decline, but still
remain high at 6.7x (currently at 7.6x), in our view.
4
Equity Research l India financials
Figure 6: Proposed asset sales
Proposed
assets sale
(INR bn)
Debt
(INR bn)
Proposed asset
sale as a % of
debt (%)
Bharti
124
1,153
Reliance Infrastructure
117
Lanco
Debt/Equity (Leverage)
Pre-sale
(x)
10.8
294
61
Stemcore
GVK
Debt/EBITDA
Post-Sale
(x)
Pre-sale
(x)
Post-Sale
(x)
2.0
1.8
4.2
3.7
39.8
1.1
0.7
7.1
4.3
425
14.4
16.0
13.7
23.7
20.3
60
143
42.1
NA
NA
NA
NA
56
222
25.2
7.3
5.4
18.7
14.0
Jaiprakash Associates (Consolidated)
39
637
6.1
4.8
4.5
9.2
8.6
Unitech
35
135
25.6
1.2
0.9
42.5
31.6
Tata Communication
32
193
16.3
25.6
21.4
5.5
4.6
NCC Limited (Earlier known as Nagarjuna
Construction Company)
25
71
35.0
2.6
1.7
8.7
5.6
Essar Group (Consolidated)
22
968
2.3
2.4
2.3
16.9
16.6
Essar Steel (Standlaone)
22
360
6.2
8.9
8.3
Ramky Infrastructure
9
38
23.8
2.5
1.9
46.3
35.3
Anant Raj Industries
9
19
48.1
0.5
0.2
11.5
6.0
Dishman Pharma
7
12
56.2
1.1
0.5
3.1
1.4
Viceroy Hotels
6
12
46.9
5.1
2.7
42.0
22.3
Loop Mobile
2
6
25.0
NA
NA
NA
NA
Madhucon Projects Ltd
NA
14
NA
2.1
NA
6.9
NA
Reliance Communication
NA
353
NA
1.3
NA
4.4
NA
Tata Power
NA
491
NA
4.3
NA
6.9
NA
602
5,186
11.6
2.5
2.2
7.6
6.7
Total
Note: Details on proposed asset sales by these groups is available in Appendix 2
Source: Company, BSE India, Live Mint, The Economic times, Business Standard, NDTV, Standard Chartered Research estimates
11 March 2014
5
Equity Research l India financials
Refinancing has played a big role in
providing liquidity to the stressed groups
Refinancing of large corporates has played a big role in providing liquidity to some of
the large overleveraged groups. Refinancing can happen in several ways:
 Promoters bringing in some funds to pay off immediate debt obligations so that
banks can refinance/ reschedule longer-term obligations by replacing old loans
with new loans,
 Replacing old loans with new loans without promoter contribution,
 Dollarisation of debt. Replacing/repaying rupee loans through dollar loans has also
become a common practice. More importantly, a lot of these dollar loans are
guaranteed by Indian banks through SBLCs (stand-by letters of credit). So the
risks of repayment is on the Indian lenders that guarantee the debt.
The key objectives of refinancing are to (1) roll over/increase the maturities of debt by
replacing old loans with new loans of longer tenors and (2) reduce finance costs by
seeking to convert rupee debt to dollar debt.
The following cases highlight recent refinancing of loans by banks:
Aircel refinanced twice in FY14: According to media reports, the telecom company
Aircel was recently refinanced by banks. The promoter, Maxis, brought in quasi-equity
of INR 60bn in October 2013. The funds were infused by the promoter after banks
asked Aircel to bring more money into the company before approving a four-year
moratorium on payment of loan principal. Following fund infusion by the promoter,
Aircel, which was to begin paying part of the principal amount from next year, has got a
major reprieve and has managed to refinance/reschedule its debt. Prior to this
refinancing, Aircel also got a temporary refinancing line from IDFC and Credit Suisse
that lent short-term loans of INR 80bn to the company in August 2013. Aircel’s total
debt is estimated at INR 200bn with interest outgo of INR 25bn every year.
http://www.business-standard.com/article/companies/maxis-infuses-rs-6-000-cr-tofund-aircel-s-interest-outgo-113102000735_1.html
Essar Oil and Essar Steel, two large accounts that dollarized debt: Essar Oil has
dollarized USD 2.3bn of debt as of December 2013, which is c.75% of its total debt,
to reduce interest outgo and also to extend the repayment period of the loan.
A consortium led by SBI in FY14 refinanced Essar Steel’s debt. The company was
also given fresh funds of INR 60bn. A large part of the refinancing was done through
dollarization of debt most of which would be backed by SBLCs. Essar Steel’s total
debt is INR 360bn. It earned core EBITDA of INR 11.6bn in FY13, but reported a net
loss of INR 51.0bn.
http://www.financialexpress.com/news/essar-steel-likely-to-get-another-rs-6000-crwill-help-firm-avoid-cdr/1161962.
http://www.dnaindia.com/money/report-essar-extends-dollarisation-of-debt-to-steel1850987. http://www.bloomberg.com/news/2012-11-07/essar-said-to-plan-4-8-billiondebt-refinance-corporate-india.html
11 March 2014
6
Equity Research l India financials
http://www.ifrasia.com/essar-joins-credit-enhancement-trend/21132506.article
Bhushan Steel likely to get additional bank funds: Recent media reports suggest
that Bhushan Steel could be in the process of refinancing its existing loans and
seeking additional funds of INR 70bn. Bhushan Steel’s total debt is INR 338bn.
http://articles.economictimes.indiatimes.com/2014-0225/news/47670669_1_capacity-expansion-221-20-crore-crore-loan
With temporary relief to large overleveraged groups, new NPLs will continue to
come from small/mid corporates as in the past: As most large overleveraged
groups have enough liquidity at least for the next few quarters, new NPL formation
will continue to come from the small and mid corporate segment, like in the past. The
key investor fear that the slippage of one large overleveraged corporate could lead to
a 50-70% increase in system NPLs has been deferred, at least temporarily.
Large, overleveraged groups are still standard assets with banks: Except for
Lanco and a few small projects of some groups, the large overleveraged groups
remain standard accounts with banks. The table below shows that only a handful of
companies \ projects belonging to large overleveraged groups are classified as
restructured. Most others are standard loans.
Figure 7: Only a few overleveraged companies are restructured
Group debt
As of
Sep'13
Debt,
INR bn
75
INR bn
425
Bina Power of the Jaypee group
32
637
Mar'13
Was earlier classified as restructured due to shift in
COD. Following new RBI guidelines it now qualifies to
be a standard asset
GMR Rajmundhry Energy (gas based)
26
542
Sep'13
Restructured
Lanco's Udupi Power
35
425
Sep'13
Was earlier classified as restructured due to shift in
COD. Following new RBI guidelines it now qualifies to
be a standard asset
GVK's Alaknanda Hydro
16
222
Sep'13
Was earlier classified as restructured due to shift in
COD. Following new RBI guidelines it now qualifies to
be a standard asset
GVK Coal Tokisud Company Pvt Ltd
3
222
Sep'13
Restructured
Lanco's Anpara Power
33
425
Sep'13
Was earlier classified as restructured due to shift in
COD. Following new RBI guidelines it now qualifies to
be a standard asset
ADAG's Sasan Power
200
1,095
Company
Lanco Infratech (Parent)
Comments
Restructured
Sep'13 (Debt of Rel Was earlier classified as restructured due to shift in
Power, Rel Infra and COD. Following new RBI guidelines it now qualifies to
Rel Comm.)
be a standard asset
Source: Company, BSE, Standard Chartered Research estimates
The RBI’s new guidelines on early resolution of distressed debt could also be used to
resolve stress in small and mid corporate accounts only, not in large corporates: the
RBI recently published detailed guidelines for the early resolution of debt. From our
discussions with lenders, it appears that the lenders will use this new framework to
resolve potential stress in the mid and small corporates, not in the large corporate
segment. Bankers say that they have already been informally using this framework
for large corporate debt. They have been sharing data on large corporate loans with
each other much before the proposal of forming a central repository was mooted
through these recent RBI guidelines.
11 March 2014
7
Equity Research l India financials
Why the long-term situation is still precarious
While the short-term relief to large corporates is welcome, we believe long-term risks
remain high. Over the past two years, when economic growth slowed and demand
slackened, these corporates added more debt mostly by drawing on existing
approvals for new projects and partly due to higher working capital requirements with
a weaker macro.
The table below shows the increase in debt of large overleveraged groups over the
past three years even while their profitability remained weak. Corporate stress
continues to rise as is evident from Indian companies’ increasing debt and declining
ability to service debt. The total debt of BSE 500 companies increased 22% p.a. over
FY09-FY13, while net profit increased at a much slower pace of 10%. Moreover, the
debt of large corporate groups has grown at a faster pace than for overall corporate
debt, thanks to easy liquidity over 2009-2011. Eleven large overleveraged corporates
that have lined up huge capex and are not yet earning free cash flows have seen
their debt rise sharply by 137% over FY10-FY13, while their operating profit has risen
at a much slower pace of 90% over this period. As a result, the debt to EBIDTA ratio
of this universe has increased to an uncomfortably high 7.3x in FY13 from 5.9x in
FY10.
11 March 2014
8
Equity Research l India financials
Rising leverage, falling cover are big risks
Corporate stress continues to rise as is evident from Indian companies’ rising debt
and declining debt servicing ability. Total debt of BSE 500 companies has increased
by 22% p.a. over FY09-FY13, while net profit has increased at a much slower pace of
10%. Moreover, debt of large corporate groups has grown much faster than the
overall corporate debt thanks to easy liquidity over 2009-2011. Eleven large
overleveraged corporates that have lined up huge capex and are not yet earning free
cash flows have seen their debt rise sharply by 137% over FY10-FY13, while their
operating profit has risen at a much slower pace of 90% over this period. As a result,
the debt to EBITDA ratio of this universe has increased to an uncomfortably high 7.3x
in FY13 from 5.9x in FY10.
The average debt to EBITDA ratio
of 11 large overleveraged
corporates has risen to 7.3x in
FY13 from 5.9x in FY10
Figure 8: Companies / groups with very high leverage
Total debt
FY13 (INR bn)
Debt / EBITDA
FY13 (x)
Adani
807
10.3
9.6
363
329
2.9
Essar Group
968
16.9
8.4
124
11
2.4
GVK
186
23.8
9.5
319
67
5.1
GMR
427
12.1
13.6
105
131
4.9
Jaypee Group
637
9.2
12.6
81
148
4.8
Videocon Group
273
10.2
6.2
126
37
1.8
Lanco
345
13.1
4.9
313
54
9.4
Total Reliance ADAG Group
914
6.7
3.7
125
24
1.1
Reliance Communication
417
5.8
3.7
40
(10)
1.1
Reliance Power
276
13.3
3.1
1,131
189
1.2
Reliance Infrastructure
221
5.0
3.7
158
88
0.7
Bhushan Steel
291
8.7
7.9
75
58
3.2
JSW Steel
219
3.5
3.5
35
35
1.5
Vedanta
906
3.2
3.8
143
190
0.5
5,973
7.3
5.9
137
90
1.5
Total
Debt / EBITDA Increase in debt Increase in EBITDA Debt / Equity
FY10 (x)
FY13/FY10 (%)
FY13/FY10 (%)
(x)
Source: Company, Bloomberg, Economic Times, Business Standard, Standard Chartered Research estimates
Large groups have
increased debt by 137%
while their EBDITA has
grown slower at 90%
over FY10-FY13.
11 March 2014
9
Equity Research l India financials
Figure 9: Movement of debt of large groups
(INR bn)
FY10
FY11
FY12
FY13
6MFY14
3 year
CAGR
CAGR over
Mar-11 to Sep-13
Videocon
121
144
273
411
NA
50
NA
GMR
209
244
362
427
542
27
38
DLF
217
240
300
310
288
13
8
Jaiprakash Associates (Standalone)
179
217
231
266
291
14
12
Jaiprakash Associates (Consolidated)
353
444
537
637
NA
22
NA
Jaiprakash Power (Standalone)
68
133
175
232
NA
51
NA
IVRCL
33
43
60
66
NA
26
NA
Adani
175
329
695
694
776
58
41
Essar Group
431
306
746
968
NA
31
NA
44
55
139
186
219
61
73
GVK
Lanco
84
167
312
345
396
60
41
Total Reliance ADAG Group
405
632
742
914
1,095
31
25
Reliance Communication
297
391
372
417
504
12
11
22
73
185
276
328
131
82
Reliance Power
Reliance Infrastructure
86
168
184
221
263
37
20
Bhushan Steel
166
217
213
291
338
20
19
JSW Steel
162
165
214
219
369
11
38
Vedanta
373
440
874
901
1,040
34
41
2,773
3,426
5,467
6,369
NA
32
NA
Total
Source: Company, Bloomberg, Standard Chartered Research estimates
Figure 10: Valuations
Price target
(INR)
FY14E
PBR (x)
FY14E
PER (x)
FY15E
PBR (x)
FY15E
PER (x)
77
66
0.4
3.8
0.3
3.2
577
550
0.7
5.2
0.6
4.4
176
125
0.4
3.4
0.4
3.0
UP
566
435
0.6
4.9
0.5
4.0
UP
1,550
1,445
1.0
9.0
0.9
7.8
1,330
1,225
1.0
8.2
0.9
7.0
2.6
Ticker
Rating
Allahabad Bank
ALBK IN
UP
Bank of Baroda
BOB IN
IL
Bank of India
BOI IN
UP
Punjab National Bank
PNB IN
State Bank of India
SBIN IN
Mkt. Price
(INR)
State banks
State Bank of India (adj. for subsidiaries)
Union Bank of India
UNBK IN
IL
106
120
0.4
3.1
0.3
Axis Bank
AXSB IN
IL
1,294
990
1.6
10.6
1.4
9.4
HDFC Bank
HDFCB IN
OP
672
740
3.5
19.8
3.0
16.3
ICICI Bank
ICICIBC IN
OP
1,069
1,105
1.7
13.8
1.5
12.0
IndusInd Bank
IIB IN
IL
411
405
2.4
15.5
2.1
12.8
Yes Bank
YES IN
IL
320
330
1.6
9.4
1.3
6.6
HDFC
HDFC IN
IL
822
900
4.5
23.1
3.9
19.3
IDFC
IDFC IN
IL
100
110
1.0
7.8
0.9
7.0
LIC Housing Finance
LICHF IN
IL
208
240
1.4
8.3
1.2
7.2
M&M Financial Services
MMFS IN
IL
245
235
2.7
15.6
2.4
13.2
Shriram Transport
SHTF IN
OP
579
750
1.6
9.5
1.4
8.3
Shriram City Union
SCUF IN
OP
964
1,300
1.9
11.3
1.5
9.8
Private banks
Finance companies
Prices as on 4 March 2014
Source: Bloomberg, Standard Chartered Research estimates
11 March 2014
10
Equity Research l India financials
Appendix 1: Details of assets sold
Seller
Asset Sold
Buyer
Consideration
Latest debt Date of
INR bn the deal
Videocon
Videocon Mauritius Energy Holding of Videocon in Mozambique block i.e. 10%
Limited
participating stake in Mozambique’s Rovuma-1 area
ONGC Videsh Ltd and Oil
India Ltd
USD 2.48bn
410.93
Jun-13
INR 38bn
637.45
Sep-13
Jaiprakash Associates
Jaypee Cement
Corporation Ltd.
100% stake in 4.8mn TPA Gujarat Cement Plant
UltraTech Cement Ltd.
Jaiprakash Power
Sold two hydro power projects in Kinnaur district
Consortium led by Abu Dhabi
National Energy Company
PJSC (TAQA)
INR 105bn
637.45
Feb-14
70% holding in GMR Energy (Singapore) Pte Ltd.
(800 MW of natural gas power plants in Singapore.
Asset is 96% complete).
FPM Power Holdings Limited
INR 70.9bn
542.50
Mar-13
542.50
Mar-13
542.50
Mar-13
GMR
GMR Infrastructure
(Singapore) Pte Ltd
50% equity in Tshedza Mining Resource (Pty) Ltd.,
Tshedza Mining Resource
which holds the license for the development of Eloff
(Pty) Ltd
mines.
Ferret Coal (Kendal) (Pty)
Ltd.
Sale of GMR’s holding of Ferret Coal (Kendal) (Pty)
Ltd. The Kendal mine is an operating mine and sells
coal in the domestic market.
Current partner
INR 2.0bn
GMR Highways Ltd
74% stake in GMR Jadcherla Expressways Ltd.,
which operates the Farukhnagar-Jadcherla highway
in Andhra Pradesh
Macquarie SBI Infrastructure
Fund
INR 2.1bn
542.50
Feb-13
GMR Highways Ltd
74% stake in GMR Ulundurpet Expressways Private
Limited
India Infrastructure Fund (IIF)
of IDFC Ltd.
INR 5.9bn
542.50
Sep-13
Group
GMR Group has sold a 40% stake in Istanbul Sabiha Malaysia Airport Holdings
Gokçen International Airport, which it manages in
Turkey
Euro 225mn
542.50
Dec-13
INR 798mn
288.47
Oct-13
INR 674mn
288.47
Oct-13
INR 3bn
288.47
Jul-13
INR295.2mn
288.47
Jul-13
DLF
DLF Home Developers
Ltd. and DLF Projects Ltd.
60% stake in Star Alubuild Private Limited (Star
Alubuild), a subsidiary.
DLF Home Developers
Ltd. (DHDL)
Sold 33 MW of wind turbines situated at Rajasthan
Violet Green Power Pvt. Ltd.,
a subsidiary of Leap Green
Energy Pvt. Ltd.
DLF Ltd.
Entered into definitive agreement: 74% equity stake
in its the Life Insurance Joint Venture - DLF
Pramerica Life Insurance Company Ltd, a joint
venture with Prudential International Insurance
Holdings Ltd
Dewan Housing Finance
Corporation Ltd ("DHFL") &
its group entities
DLF Ltd.
Definitive Business Transfer Agreement for
transferring an unit comprising of 11.2 MW capacity
wind turbines situated at Gadag, Karnataka on ‘as is
where is basis’ by way of a slump sale
Goyal MG Gases Private
Limited
DLF Ltd.
150 MW capacity wind turbines situated in Kutch,
Gujarat
BLP Vayu (Project 1) Private
Ltd., a subsidiary of Bharat
Light & Power Pvt. Ltd.
INR 3.3bn
288.47
Jan-13
DLF Home Developers
Ltd. (DHDL)
Definitive Agreement: Tamil Nadu wind mill
undertaking of 34.5 MW capacity including related
assets and liabilities (including current assets and
liabilities) and relevant long-term loans of the said
undertaking by way of a slump sale
Tulip Renewable Powertech
Private Limited (Tulip)
INR 1.9bn
288.47
Apr-13
DLF Ltd.
17-acre plot in Mumbai - Jawala Real Estate Pvt.
Ltd.
Lodha Developers Limited
INR 27.3bn
288.47
Aug-12
DLF Hotel Holdings
Limited
Divested its entire shareholding in Adone Hotels and
Hospitality Limited
INR 5.7bn
288.47
Jun-12
DLF Ltd.
DLF (67%) along with its joint venture partner
Hubtown Limited (33%), have sold 100% of their
respective shareholding in DLF Ackruti Info Parks
(Pune) Limited. 'DLF Ackruti' owns a notified IT/ITES
SEZ located in Pune, Maharashtra.
INR 5.4bn
288.47
Dec-11
USD 350mn
288.47
Feb-14
DLF Global Hospitality Ltd Aman Resorts
Real estate fund affiliated
with The Blackstone Group,
BRE/Mauritius Investments II
Adrian Zecha
Source: Company, BSE India, Live Mint, The Economic times, Business Standard, NDTV, Standard Chartered Research
11 March 2014
11
Equity Research l India financials
Appendix 1: Details of assets sold (continued)
Seller
Asset Sold
Buyer
30% stake in PT Arutmin mine (Indonesia)
Bakrie group entity
Consideration
Latest debt Date of
INR bn the deal
TATA POWER
Tata power
USD 500mn
490.7
Jan-14
INR 22 bn
67.04
Apr-13
USD 230mn
868.74
Jan-13
INR 12bn
352.80
Jul-13
€77 million
424.85
Feb-14
USD 28mn
167.95
Sep-13
INR 2bn
167.95
Apr-13
INR 1.9bn
193.14
Apr-13
USD 20mn
92.66
Oct-13
Undisclosed
134.85
Oct-13
IVRCL Ltd
IVRCL Ltd.
Three build, operate and transfer (BOT) road projects TRIL Roads Pvt. Ltd, a Tata
in Tamil Nadu:
group company
Salem Tollways Limited
Kumarapalayam Tollways Limited
IVRCL Chengapally Tollways Limited
Adani
Abbot Point Terminal
Terminal in Australia, acquired two years ago for USD Group’s promoters (Adani
235mn along with debt of USD 2bn, sold to the
Family)
promoters. Believed to be sold back at the acquisition
price.
Reliance Communication
RCOM
Securitisation Under USD 200mn) Inter-City Fibre
Agreement With Reliance Jio Infocomm
Reliance Jio Infocomm
70 MW Lanco Budhil hydropower project and two
smaller plants of 5 MW each in Himachal Pradesh
Greenko Energies Pvt. Ltd
LANCO
Lanco Infratech Limited
Suzlon
Suzlon Energy
75% stake in China Subsidiary, Suzlon Energy Tianjin Poly LongMa Energy (Dalian)
Limited
Ltd.
Suzlon Energy
Sale of a block of wind assets
Tata Communication
TCL
Sold the land parcel and building situated at
Nungambakkam, Chennai
Punj Llyod
Punj Lloyd Pte Ltd
Sold its entire shareholding in Olive Group Capital
Limited, comprising 27.78% of its capital
UNITECH
Unitech Wireless
33.75% stake in mobile phone and accessories
distributor Unitech Wireless
Telenor
Source: Company, BSE India, Live Mint, The Economic times, Business Standard, NDTV, Standard Chartered Research
11 March 2014
12
Equity Research l India financials
Appendix 2: Details of planned asset sales
Seller
Asset on sale
Bharti
Plans to sell most of its transmitter towers in Africa
Reliance Infrastructure
Plans to sell either all or most of its 11 road projects to pare debt
Expected
consideration
INR bn
Latest debt
INR bn
122
1,153.10
117.0
294.3
Lanco
Lanco Infratech Limited
Lanco is examining options including a full sale of its Australian unit Griffin Coal
Mining Co., which it bought for 750mn Australian dollars in 2011
31.0
424.8
Lanco Infratech Limited
Plans to sell the 1,200 MW Udupi Power Corp. Ltd in Karnataka
30.0
424.8
STEMCORE
Assets in India of UK steel trader Stemcor Holdings Ltd
60.0
142.60
GVK
Likely to finalise stake dilution in its airport business over the next couple of
months and the proceeds will be used to clear INR 25bn of non-operational
debt.
25.0
222.4
Likely to sell its stake in two Indonesian airport projects
30.5
222.4
Jaypee Sports International Ltd
Planning to sell the group’s real estate assets to pare debt by INR 10bn
10.0
637.4
Jaiprakash Associates
74% stake in two cement joint ventures with SAIL
29.0
637.4
Unitech
Planning to sell two hotels near Delhi and land parcels in southern cities
8.5
134.9
Already in the process of selling a 3.6mn square feet IT SEZ in Gurgaon
26.0
134.9
Exclusive discussions with Vodacom Group Limited (Vodacom) to sell all of the
issued share capital of Neotel, held directly or indirectly by the company. The
sale will also include the company's direct and indirect loan claims in Neotel.
31.5
193.1
NCC Limited (Earlier known
as Nagarjuna Construction
Company)
Plan to sell 5 BOT road projects and some real estate projects
25.0
71.4
Essar Group / Essar Steel
Essar Steel to raise INR 22.4bn by selling three non-core assets
22.4
967.5
Ramky Infrastructure Ltd.
Plans to raise INR 9bn (USD 146mn) by selling stakes in its three highway
projects to repay debt
9.0
37.8
Anant Raj Industries
Planning to sell two hotel properties in the Delhi-NCR region for an estimated
INR 9bn as part of the company's strategy to monetise non-core assets.
9.0
18.7
Dishman Pharma
Plans to sell its China plant to pare off some debt. The plant is in the Shanghai
Chemical Industry Park had started operations last year and is currently
making intermediates and speciality chemicals.
1.6
11.7
Plans to sell its special economic zone (SEZ) land in Gujarat to reduce debt
5.0
11.7
Viceroy Hotels
To sell the Chennai division
5.6
11.9
Loop Mobile
Plans to sell some of its real estate properties
1.5
6.0
Madhucon Projects Ltd.
Plans to sell at least a 74% stake in Madhucon Agra-Jaipur Expressways Ltd
NA
14.34
Reliance Communication
Samena Capital, in a proposed consortium with certain other global PE funds,
is at an advanced stage of the process of due diligence and completion of
definitive documents in relation to the acquisition of Reliance Globalcom Ltd.,
RCom's global communications services business unit.
NA
352.8
Tata Power
May sell some of its investments and raise equity to help slash a USD 4.9bn
debt pile. Tata Power's financial investments include stakes in sister firms in
the salt-to-software Tata conglomerate, including 17% of Tata
Communications, valued at roughly USD 180mn, and shares in Tata
Teleservices (Maharashtra) Ltd and Tata Consultancy Services Ltd.
NA
490.7
Jaiprakash Associates
Tata Communication
VSNL SNOSPV Pte Ltd
Source: Company, BSE India, Live Mint, The Economic times, Business Standard, NDTV, Standard Chartered Research
11 March 2014
13
Equity Research l India financials
Disclosures appendix
The information and opinions in this report were prepared by Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Bank Singapore Branch, Standard
Chartered Securities (India) Limited, Standard Chartered Securities Korea Limited and/or one or more of its affiliates (together with its group of companies, ”SCB”)
and the research analyst(s) named in this report. THIS RESEARCH HAS NOT BEEN PRODUCED IN THE UNITED STATES.
Analyst Certification Disclosure: The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and
attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other
subject matter as appropriate; and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views
contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
Where “disclosure date” appears below, this means the day prior to the report date. All share prices quoted are the closing price for the business day prior to the
date of the report, unless otherwise stated.
Recommendation Distribution and Investment Banking Relationships
% of covered companies
currently assigned this rating
% of companies assigned this rating with which SCB has provided
investment banking services over the past 12 months
OUTPERFORM
53.2%
14.5%
IN-LINE
35.2%
12.8%
UNDERPERFORM
As of 31 December 2013
11.6%
8.3%
Research Recommendation
Terminology
OUTPERFORM (OP)
IN-LINE (IL)
UNDERPERFORM (UP)
Definitions
The total return on the security is expected to outperform the relevant market index by 5% or more over the next 12 months
The total return on the security is not expected to outperform or underperform the relevant market index by 5% or more over the next
12 months
The total return on the security is expected to underperform the relevant market index by 5% or more over the next 12 months
SCB uses an investment horizon of 12 months for its price targets.
Additional information, including disclosures, with respect to any securities referred to herein will be available upon request. Requests should be sent to
[email protected].
Global Disclaimer: Standard Chartered Bank and/or its affiliates ("SCB”) makes no representation or warranty of any kind, express, implied or statutory regarding
this document or any information contained or referred to in the document. The information in this document is provided for information purposes only. It does not
constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it
constitute any prediction of likely future movements in rates or prices or represent that any such future movements will not exceed those shown in any illustration.
The stated price of the securities mentioned herein, if any, is as of the date indicated and is not any representation that any transaction can be effected at this price.
While all reasonable care has been taken in preparing this document, no responsibility or liability is accepted for errors of fact or for any opinion expressed herein.
The contents of this document may not be suitable for all investors as it has not been prepared with regard to the specific investment objectives or financial situation
of any particular person. Any investments discussed may not be suitable for all investors. Users of this document should seek professional advice regarding the
appropriateness of investing in any securities, financial instruments or investment strategies referred to in this document and should understand that statements
regarding future prospects may not be realised. Opinions, forecasts, assumptions, estimates, derived valuations, projections, and price target(s), if any, contained in
this document are as of the date indicated and are subject to change at any time without prior notice. Our recommendations are under constant review. The value
and income of any of the securities or financial instruments mentioned in this document can fall as well as rise and an investor may get back less than invested.
Future returns are not guaranteed, and a loss of original capital may be incurred. Foreign-currency denominated securities and financial instruments are subject to
fluctuation in exchange rates that could have a positive or adverse effect on the value, price or income of such securities and financial instruments. Past
performance is not indicative of comparable future results and no representation or warranty is made regarding future performance. While we endeavour to update
on a reasonable basis the information and opinions contained herein, there may be regulatory, compliance or other reasons that prevent us from doing so.
Accordingly, information may be available to us which is not reflected in this material, and we may have acted upon or used the information prior to or immediately
following its publication. SCB is not a legal or tax adviser, and is not purporting to provide legal or tax advice. Independe nt legal and/or tax advice should be sought
for any queries relating to the legal or tax implications of any investment. SCB, and/or a connected company, may have a position in any of the securities,
instruments or currencies mentioned in this document. SCB and/or any member of the SCB group of companies or its respective officers, directors, employee benefit
programmes or employees, including persons involved in the preparation or issuance of this document may at any time, to the e xtent permitted by applicable law
and/or regulation, be long or short any securities or financial instruments referred to in this document and on the website or have a material interest in any such
securities or related investment, or may be the only market maker in relation to such investments, or provide, or have provid ed advice, investment banking or other
services, to issuers of such investments. SCB has in place policies and procedures and physical information walls between its Research Department and differing
public and private business functions to help ensure confidential information, including ‘inside’ information is not disclosed unless in line with its policies and
procedures and the rules of its regulators. Data, opinions and other information appearing herein may have been obtained from public sources. SCB makes no
representation or warranty as to the accuracy or completeness of such information obtained from public sources. You are advised to make your own independent
judgment (with the advice of your professional advisers as necessary) with respect to any matter contained herein and not rely on this document as the basis for
making any trading, hedging or investment decision. SCB accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including
special, incidental, consequential, punitive or exemplary damages) from use of this document, howsoever arising, and including any loss, damage or expense arising
from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any
unavailability of the document or any part thereof or any contents or associated services. This material is for the use of intended recipients only and in any
jurisdiction in which distribution to private/retail customers would require registration or licensing of the distributor which the distributor does not currently have, this
document is intended solely for distribution to professional and institutional investors.
Country-Specific Disclosures - If you are receiving this document in any of the countries listed below, please note the following:
United Kingdom and European Economic Area: SCB is authorised in the United Kingdom by the Prudential Regulation Authority and regulated by the Financial
Conduct Authority and the Prudential Regulation Authority. This communication is not directed at Retail Clients in the European Economic Area as defined by
Directive 2004/39/EC. Nothing in this document constitutes a personal recommendation or investment advice as defined by Directive 2004/39/EC.
Australia: The Australian Financial Services Licence for Standard Chartered Bank is Licence No: 246833 with the following Australian Registered Business Number
(ARBN: 097571778). Australian investors should note that this document was prepared for “wholesale clients” only within the meaning of section 761G of the
Australian Corporations Act 2001 (Act) and the Corporations Regulations. This document is not directed at persons who are “retail clients” as defined in the
Australian Corporations Act 2001. Brazil: SCB disclosures pursuant to the Securities and Exchange Commission of Brazil (“CVM”) Instruction 483/10: This research
has not been produced in Brazil. The report has been prepared by the research analyst(s) in an autonomous and independent way, including in relation to SCB. THE
SECURITIES MENTIONED IN THIS DOCUMENT HAVE NOT BEEN AND WILL NOT BE REGISTERED PURSUANT TO THE REQUIREMENTS OF THE
SECURITIES AND EXCHANGE COMMISSION OF BRAZIL AND MAY NOT BE OFFERED OR SOLD IN BRAZIL EXCEPT PURSUANT TO AN APPLICABLE
11 March 2014
14
Equity Research l India financials
EXEMPTION FROM THE REGISTRATION REQUIREMENTS AND IN COMPLIANCE WITH THE SECURITIES LAWS OF BRAZIL. Germany: In Germany, this
document is being distributed by Standard Chartered Bank Germany Branch which is also regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
Hong Kong: This document, except for any portion advising on or facilitating any decision on futures contracts trading, is being distributed in Hong Kong by, and is
attributable to, Standard Chartered Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority. India: This document is being distributed in
India by Standard Chartered Securities (India) Limited which is a SEBI registered broker and a member of the Bombay Stock Exchange Limited and The National
Stock Exchange of India Limited. Korea: This document is being distributed in Korea by, and is attributable to, Standard Chartered Securities Korea Limited which is
regulated by the Financial Supervisory Service. Malaysia: This document is being distributed in Malaysia by Standard Chartered Bank Malaysia Berhad only to
institutional investors or corporate customers. Recipients in Malaysia should contact Standard Chartered Bank Malaysia Berhad in relation to any matters arising
from, or in connection with, this document. Singapore: This document is being distributed in Singapore by Standard Chartered Bank Singapore Branch only to
accredited investors, expert investors or institutional investors, as defined in the Securities and Futures Act, Chapter 289 of Singapore. Recipients in Singapore
should contact Standard Chartered Bank Singapore Branch in relation to any matters arising from, or in connection with, this document. South Africa: SCB is
licensed as a Financial Services Provider in terms of Section 8 of the Financial Advisory and Intermediary Services Act 37 of 2002. SCB is a Registered Credit
Provider in terms of the National Credit Act 34 of 2005 under registration number NCRCP4. United States: Except for any documents relating to foreign exchange,
FX or global FX, Rates or Commodities, distribution of this document in the United States or to US persons is intended to be solely to major institutional investors as
defined in Rule 15a-6(a)(2) under the US Securities Act of 1934. All US persons that receive this document by their acceptance thereof represent and agree that
they are a major institutional investor and understand the risks involved in executing transactions in securities. Any US recipient of this document wanting additional
information or to effect any transaction in any security or financial instrument mentioned herein, must do so by contacting a registered representative of Standard
Chartered Securities (North America) Inc., 1095 Avenue of the Americas, New York, N.Y. 10036, US, tel + 1 212 667 0700. WE DO NOT OFFER OR SELL
SECURITIES TO U.S. PERSONS UNLESS EITHER (A) THOSE SECURITIES ARE REGISTERED FOR SALE WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION AND WITH ALL APPROPRIATE U.S. STATE AUTHORITIES; OR (B) THE SECURITIES OR THE SPECIFIC TRANSACTION QUALIFY FOR AN
EXEMPTION UNDER THE U.S. FEDERAL AND STATE SECURITIES LAWS NOR DO WE OFFER OR SELL SECURITIES TO U.S. PERSONS UNLESS (i) WE,
OUR AFFILIATED COMPANY AND THE APPROPRIATE PERSONNEL ARE PROPERLY REGISTERED OR LICENSED TO CONDUCT BUSINESS; OR (ii) WE,
OUR AFFILIATED COMPANY AND THE APPROPRIATE PERSONNEL QUALIFY FOR EXEMPTIONS UNDER APPLICABLE U.S. FEDERAL AND STATE LAWS.
© Copyright 2014 Standard Chartered Bank and its affiliates. All rights reserved. All copyrights subsisting and arising out of all materials, text, articles and
information contained herein is the property of Standard Chartered Bank and/or its affiliates, and may not be reproduced, redistributed, amended, modified, adapted,
transmitted in any form, or translated in any way without the prior written permission of Standard Chartered Bank.
Click here to download the Standard Chartered Research app for iPad
11 March 2014
15

Download Report