For India Inc the year 2014 was underlined by just one word — Hope. Ever since the BJP government under Prime Minister Narendra Modi assumed office on May 26, industry veterans have been pinning hopes that the economy would be set right and quick decision-making on key issues dogging it would spur growth. There have been disappointments on some counts but by and large the hope that Modi would deliver on his promises and set things right remains intact.
If one goes purely by the earnings of companies across sectors during the first two quarters, there was not much to cheer. Broadly, sales, Ebitda and profits were below estimates, though there were certain large caps which delivered above-estimates earnings. However, there were certain interesting features which marked the year. One of them was the rise of the e-commerce firms, which attracted funding from global private equity players, so much so that the total investments in this particular sector crossed the $3-billion mark during the year, which was a five-fold jump from 2013.
Japan’s telecom and media major SoftBank was the major star which pumped in a cumulative $840 million into Snapdeal and Ola during the year. It would not be wrong to say that nascent e-commerce firms like Flipkart, Snapdeal and global giant Amazon were the star performers during the year by changing the way consumer items are purchased, so much so that the brick and mortar firms came under siege.
Though the drag in the performance of companies, mainly in the infrastructure sectors— power, telecom and construction—on the back of policy paralysis during the UPA government’s tenure, led several of them to hive off their non-core assets to raise funds to pare high debts, there was a silver lining in the whole process. The move led to a high degree of merger and acquisitions. The year saw domestic firms parting with assets worth nearly R65,000 crore, slightly more than what they did during 2013.
Jaypee Group, which sold its assets in cement and power businesses, raised around R16,000 crore in the process. Telecom major Bharti Airtel, whose performance in Africa is still to turn profitable, sold 12,500 towers in that country for an enterprise value of nearly R15,000 crore. This process of companies de-leveraging themselves by selling off non-core assets would continue into the new year.
As pointed out earlier, it wasn’t that there were no disappointments for the industry. They were aplenty but it’s the hope that with time the hurdles would be overcome is what is striking. Industry leaders are willing to give time to the government and a lack of majority in the Rajya Sabha is often touted as a reason for the government going slow on reforms in a certain sector. But as the BJP kept on improving its performance in assembly election after election— Haryana, Maharashtra, Jharkhand and even Jammu and Kashmir—the hope has only swelled.
Among the disappointments, the telecom sector has been a key one with the CEO of Vodafone India even going to the extent of saying that it is difficult to do business in the country. The dynamics of the sector is a bit complex and the legacy of the UPA still haunts it. The biggest setback for the industry was that the department of telecommunications under the new minister, Ravi Shankar Prasad, chose to challenge the telecom tribunal’s decision to allow 3G intra-circle roaming. The other big concern for the industry is lack of clarity on the forthcoming auctions in February 2015. While initially the government planned to auction only the 2G spectrum in 900 and 1800 Mhz bands for licences that are expiring in 2015-16. However, the Telecom Regulatory Authority of India later told it that since spectrum is less in these two bands, it would be advisable if the pool is enlarged by including 3G also by getting some spectrum vacated by the defence ministry. While the defence ministry has in-principle agreed to a swap proposal by which the DoT would get 15 Mhz of 3G spectrum in the 2100 Mhz band for auction, the DoT is still not coming out clear whether a simultaneous 2G/3G auctions would take place in February. The final result on this count would decide the fate of the telecom industry in the coming year.
Similarly, the cancellation of coal blocks allocated since 1993 by the Supreme Court came as a big blow for the industry which was already reeling under earlier ban on mining of iron ore. While later during the year the mining ban was relaxed the industry is still to recover from its blow. In the coal sector the government has moved swiftly and put in place the auction design and plan to allocate the blocks. The auctions are expected to take place in a month or so.
Though there’s some disappointment about the pace of reforms, the hope has not waned and that’s the silver lining.