Companies & Sectors
StanChart PE pumps in Rs250 crore in Inox India

Standard Chartered Private Equity has bought minority stake in Inox India, the cyrogenic storage and transport equipment manufacturer, for Rs250 crore

Mumbai: The private equity arm of British bank Standard Chartered on Wednesday said it has invested Rs250 crore in cyrogenic storage and transport equipment manufacturer Inox India, reports PTI.
Standard Chartered Private Equity (SCPE) has picked up a minority stake in the company and the infusion will be deployed for both organic growth as well as potential acquisitions, it said in a statement.
The statement, however, was silent on the exact stake picked up by the SCPE, which can offer colour on valuation.
The advent of shale gas exploration has increased the demand for cryogenic storage equipment, a precision engineering product used for storage and distribution of liquefied gases used in industrial applications, the statement said.
"The unprecedented shale gas supplies in the US are driving the use of LNG as a cheap and clean fuel in transportation and industrial applications," SCPE's managing director Mukul Nag said.
Yes Bank acted as the transaction advisor for Inox India while Khaitan and Company and Wadia Ghandy and Company were the legal advisors for Inox and SCPE respectively, it added.
SCPE, which invests $20 million to $100 million in mid to late stage companies, has earlier invested in GMR Airports, Redington, Varun Beverages, Greenko, Privi Organics, Bush Foods, Innoventive Industries, Karaikal Port and Craftsman Automation, it added.


Tough steps being mulled to punish firms on graft issue: CVC

Businesses must refrain from adopting corrupt practises while obtaining government contracts, says CVC Pradeep Kumar

New Delhi: Citing US and British laws, Central Vigilance Commission on Wednesday said stringent provisions are being contemplated to punish companies which fail to do due diligence in preventing corruption, reports PTI.


"UK Bribery Act and the Foreign Corrupt Practices Act of USA have stringent provisions to punish companies which fail to do due diligence in preventing corruption. Similar provisions are being legislated in the Prevention of Bribery of Foreign Public Officials Bill in India," Central Vigilance Commissioner Pradeep Kumar said.


Highlighting the need to sensitise and build the confidence of the private sector in promoting integrity and healthy competition in public procurement, he said businesses must refrain from adopting corrupt practises while obtaining government contracts.


Inaugurating a two-day workshop on integrity in public procurement being organised by Transparency International (TI) in the capital, Kumar said companies should adopt an anti-corruption strategy.


The CVC said multiplicity of regulations, guidelines and procedures issued by several agencies often created "confusion and ambiguity."


"Complex, variable and ambiguous rules not only create opportunities for corruption but also increase the probability of their violation," he said.


Making a strong pitch for review of prevalent public procurement guidelines, Kumar said this needs to be done in the light of modern day concept of supply-chain management.


"No reform in the Indian public procurement system can be complete without the active role of private sector which has an equal stake in it. There is a need to sensitise and build confidence of the private sector in promoting integrity and healthy competition in public procurement," he said.


"Besides enhancing their reputation for honest business, corporates can ensure a cleaner and more sustainable market environment for future growth, the CVC said.


Kotak cautious on banking sector; expects stress to remain high

Kotak Institutional Equities expects revenues of banks to slow down amidst higher credit costs due to an increase in repo rates 

Kotak Insitutional Equities (Kotak) has released a report stating that the banking sector continues to face pressure and stress due to loans going sour despite fairly positive first quarter results. It has maintained a cautious outlook. It said, “(banks) have reported strong earnings growth at 37% y-o-y (21% ex-SBI) on the back of healthy revenue growth of 16% y-o-y and lower provisions (9% y-o-y decline) despite non performing loans (NPL) rising sharply.” However, it expects revenue to slow down amidst higher credit costs due to an increase in repo rates. The investment bank suggests investors pick up State Bank of India (SBI), ICICI Bank and Federal Bank, while it prefers Mahindra & Mahindra Financial Services, Shriram City Union Finance and IDFC in the non-banking financial space. 
According to Kotak report, “1QFY13 was dismal across banks with gross NPL increasing sharply by 14% q-o-q (primarily from SBI) to 3.1% of loans. Net NPL increased 20% q-o-q to 1.4% of loans. Slippages were high at 3% with slippages steadily moving from mid-corporate/SME segment to retail and agriculture.” SBI saw the most slippage (5%), followed by Punjab National Bank (4.3%), Union Bank (3.6%), Andhra Bank (3.9%), Bank of India (2.8%), Canara Bank (2.6%), to name the top few.
Public sector banks have borne the most of the brunt, having restructured 9% of their total loans. The worse affected are Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce and Punjab National Bank, with restructured loans touching double digits. SBI’s restructured total loans stood at 6.9%. On the other hand, private sector banks hardly restructured their loans—HDFC Bank (0.5%), Axis Bank (2.3%) and ICICI Bank (2.3%). Refer to our cover story on PSU banks (
What must be noted is the root causes for these slippages—poor performance of the aviation sector and massive defaults by state electricity boards. “We note that SEB/aviation restructuring accounts for 34% of the total restructured loan portfolio of banks and nearly 50% of the overall SEB exposure has been restructured,” the report said. 
According to the report, public sector banks are trading at less than their book values, at 0.8x price-book ratio. This may be cheap, but it is cheap for the very reason that public sector banks are badly run and badly need reforms.
Another factor is that infrastructure loans have slowed down quite a bit since 2009, as the government has stymied reforms amidst corruption. According to the report, its growth rate in 2009 was 31.6% while today it is 13.2%. Despite this, loan growth has been fairly stable over the last few quarters and stood at 18%-20% levels. Private sector bank loans grew over 23% (the highest in last four quarters) while public sector bank showed 18.7% loan growth (which is down from 21.7% from the corresponding quarter last year). 
On the consumer side, deposit growth continues to lag credit growth and is currently below 14%. This is due to the fact that consumers are shying away from fixed deposits which are currently getting eaten up by inflation. With the exception of SBI and private banks, other banks have shown a decline in deposit growth, indicating their inability to attract customers. 
The entire industry is going through a tough time with short-term rates still remaining high and liquidity well below comfortable levels. According to Kotak, loan growth in the previous quarters were funded by expensive deposits resulted which in turn led to the rise in cost of funds in the first quarter of 2013 fiscal. This resulted in the erosion of net interest margins. However, the investment bank expects cost of funds to decline.
The only glimmer of hope is the performance of non-banking financial companies (NBFC) which have performed somewhat better than expected but future is also uncertain. According to the report, “NBFCs’ 1QFY13 performance was broadly in line with expectations: (1) y-o-y growth was high at 25%-30% for most players, (2) NIM improved y-o-y for most players (post interest rate hikes in 3QFY11, NIM were suppressed in 1QFY12) and (3) NPLs inched up q-o-q during the quarter.”


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