Escolar Documentos
Profissional Documentos
Cultura Documentos
Contents: The mobile telephone industry has taken the number of urban mobile users and
Growth Prospects of the the world by storm over recent years rural users.
Indian Telecommunications and India has not been spared. Mobile
Sector.......................................................1-3
phones have become a necessity and India has the second largest population
India Inc in Africa........................................4 part of everyday life. The Indian mobile in the world at 1.1bn people, it has the
Indian Multinationals: phone market is now the second fastest largest middle class in the world and the
Consolidating Domestic Growth with growing market in the world behind China country has been experiencing healthy
Cross-border Mergers and Acquisitions
..................................................................5-7 and this growth looks set to continue economic growth of over 6% per annum
regardless of the global recession. The for the last six years. This represents an
Frontier Advisory Profile............................9
telecommunications industry, particularly opportunity for growth in the telecoms
the mobile industry, has still managed to industry as more and more individuals
add around 8-10m new subscribers every move from the “lower class” towards
month. This illustrates the huge growth “middle class” status, changing not only
potential of the Indian mobile market, their purchasing power but also tastes
which currently consists of about 415m and lifestyles.
subscribers and counting. India has a
mobile penetration rate of about 43% and India also has a positive population
an annual growth rate of close to 50%. growth rate that could make it the most
These figures could be a lot higher, but populous country in the world within the
are limited given the large gap between next 40 years. This bodes well for mobile
1
© 2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved
India Business Frontier
India Frontier Advisory
September 2009 Research & Strategy in and beyond emerging markets
service providers looking to invest in India, given that there are going to be more
potential customers as the years go by. This means companies wanting to invest in
Indian telecommunications can take a very profitable long-term view of the country
and make sure their service is exceptional, in order to lure new customers to their
business.
A major potential growth hotspot is particularly the rural part of the population,
which is generally under-serviced. The rural population makes up the majority of
India’s population and is currently prohibited from engaging in the benefits of mobile
communication, because of the high prices of cellular phones and the reluctance of
mobile operators to build infrastructure in areas that will not garner large profits for
them.
Cellular phones have become a necessity in most parts of the world and they are no
longer just used for simple voice and messaging communication, but can be used for
various multimedia functions, business tools, data and web-related activities. India is
poised to take up these opportunities and any mobile service provider who can make
these functions work effectively and efficiently, will have a competitive advantage
over their competitors because Indian mobile operators have only been able to
effectively run messaging and voice calling services. A firm that can go that extra
mile, will become a market leader. Initially there will be a slow uptake because of the
scepticism that individuals not familiar with the technology yet may have; but as the
service becomes more reliable and trustworthy, more individuals will make use of it.
In India there are nine large mobile service providers and many small mobile service
providers. The four biggest providers are Bharti Airtel, Vodafone Essar, BSNL and
Reliance Telecom. Together they own over 60% of the market and they are located in
all major cities across the country.
Due to the higher costs of branded mobile handsets, many Indians often opt for
cheaper and unbranded mobile phones. This has helped increase the number of
mobile subscribers in India. The Indian Department of Telecommunications (DoT),
however, has directed mobile phone service users to disconnect the usage of
unbranded mobile phones that do not have International Mobile Equipment Identity
(IMEI) numbers. This move could potentially suspend 30m (about 8% of mobile
phones in India) mobile phones and make the purchase of these cheap phones
unviable and reduce subscriber growth.
In contrast to the rapidly increasing mobile sector, India has a small fixed-line industry
of only 40m subscribers. This segment has been dominated by two firms, Mahanagar
Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL).
With the liberalisation of this section of the industry, there is an opportunity for other
companies to provide a superior service that will increase the penetration of fixed
lines. Along with a low penetration of fixed lines there is also a very sluggish uptake of
broadband internet. Most Indian internet users are still using dial-up connections and
this is an opportunity for large ISPs (Internet Service Providers) to enter the country
and convert the 80m internet users into broadband users. Faster and better internet
will improve company services and new technology such as WiMax, and can be used
2
© 2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved
India Business Frontier
India Frontier Advisory
September 2009 Research & Strategy in and beyond emerging markets
The Indian government also has plans to roll out third generation (3G) technology and
this will be done via an auction for 3G licenses. This further bodes well for the future
of the Indian mobile industry.
A preferred method for a foreign telecoms firm to enter the Indian market and
succeed would be to acquire a stake in an existing company that has knowledge of
the Indian market. A good example of this is the partnership between Vodafone and
Essar. Vodafone acquired 67% of Hutchison Essar in 2007 at a value of US$11.1bn.
This symbiotic relationship has allowed Vodafone to use its large brand name to
garner more subscribers in India.
Another such deal is the Bharti and MTN deal, which is still in the pipeline and looks
likely to go ahead. Both sides hope to gain from becoming partners and the South
African government has backed the deal which could make the deal more likely to
happen in the near future. Bharti also hopes to be able to operate in conjunction with
MTN in emerging markets that it is not currently operating in, such as the Middle East
and parts of Africa. MTN on the other hand is using this partnership to make inroads
into India.
MTN’s higher ARPU (Average Revenue Per User) of US$13 makes the merger a very
attractive deal for Bharti as India has the lowest mobile rates in the world and hence
the ARPU is much lower at US$6.50. Bharti therefore relies on large volumes to make
massive gains.
Jointly the two companies will be able to increase their global subscriber base
making Bharti MTN the third largest mobile operator in the world. Bharti is the largest
cellular network provider in India and the 7th largest in the world, with an estimated
subscriber base of 88m Indians. This represents 21.4% of the Indian customer
base. MTN is the 2nd largest cellular network provider in South Africa and one of the
leading providers in Africa. Together they could have an entity that consists of more
than 200m subscribers. If the merger proceeds, it would result in Bharti Airtel getting
a 49 per cent stake in MTN while the South African telecom entity will receive a 36
per cent “economic interest” in Bharti Airtel. The future is bright for both of these
companies and a merger will solidify their market dominance.
3
© 2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved
India Business Frontier
India Frontier Advisory
September 2009 Research & Strategy in and beyond emerging markets
Tanzania
South Africa Yes Bank sees 1st Africa farm
Essar Group acquires BPO firm project start 2011
Essar Group of New Delhi’s business process Indian bank plans SA agro-park
Yes Bank’s US$150m
outsourcing and technology arm, Aegis Ltd, Yes Bank has announced plans to create
Tanzanian rice and wheat
has acquired CCN Group PTY Ltd, a South an agro-park with spatial integration of
project is expected to reach
Africa-based BPO firm, for around US$30m. production, processing, trade and the logistics
full production by 2011.This is
Aegis plans to invest US$60m in South Africa supply chain in South Africa. At a cost of
the first of several large African
in the next 3 years, creating about 5,000 jobs about US$200m per park, the bank is looking
farms the Bank is funding.
there. to roll out a similar park in Mauritius.
Softpro acquires 100% stake in SA firm Indian company gets South African coal
IT solutions provider Softpro Systems has Jindal Steel & Power, part of the Jindal Group,
acquired a 100% equity stake in South Africa- has acquired the Kiepersol thermal coal mine
based Cura Risk Management software for in South Africa – an underground mine which
US$19m. Softpro will pay US$16m upfront produces mid-low volatile thermal coal.
and the rest in the next 3 years based on
performance of the acquired company.
4
© 2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved
India Business Frontier
India Frontier Advisory
September 2009 Research & Strategy in and beyond emerging markets
Recent years have seen the rise of M&As are also made possible by the fact
Indian multinationals, and with this a that they are made by companies that are
steep increase in the number of mergers more often than not part of a bigger group
and acquisitions (M&As) between these and therefore have more assets to leverage
multinationals and foreign companies. As when seeking a loan. This fact would not
Indian companies have grown domestically, ordinarily separate them from their Western
they have sought to consolidate this growth counterparts, but with the current economic
by becoming globally competitive. M&As climate and Western banks becoming
have brought them a considerable distance more regulated, Indian multinationals
in achieving this goal as well as providing have greater access to finance. Aegis, for
entry into profitable high-margin markets in example, is part of the Essar Group and
the developed world, while at the same time has used this position to finance its 12
allowing them to retain their low-cost bases M&A deals in the last three years. These
in India. companies are also usually run by powerful
families and individual stakeholders and
The recent colossal growth in India’s as a result decisions can be made quicker
outbound M&As has been attributed and with less regard for shareholders.
to a number of factors. These include This is in contrast to Western companies
extraordinary domestic economic growth; who are more risk averse for fear that their
less restricting regulation with regard to shareholders will abandon the proverbial
investing abroad, as well as the 2004 policy ship at the earliest sign of uncertainty.
change that allowed Indian companies to
borrow abroad. This policy change was The approach to M&As by Emerging Market
swiftly followed by Hindalco using overseas Multinationals – and specifically Indian
institutions to finance a US$3bn acquisition multinationals – is considered unique in
of Novelis, as well as Tata Motors’ US$3bn that the goals of these deals are to acquire
acquisition of Jaguar-Land Rover. India’s a brand, technology, customers and
5
© 2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved
India Business Frontier
India Frontier Advisory
September 2009 Research & Strategy in and beyond emerging markets
complementary competencies. Tata Steel’s deal with Corus, for example, resulted
in Tata Steel owning a new company and 80 US patents. This approach differs to
the M&As by Western, or even Japanese companies in that these companies rarely
look past the quantitative factors, such as operating costs and the level of domestic
demand, in a potential merger or acquisition. In contrast to Western-led M&As, Indian-
led M&As are characterised by a low turnover of the acquired company’s executive
and slow-moving integration.
90
80
70
US$ Billions
60
50
40
30
20
10
0
2000-2001 2001-2002 2002-2003 2003-2004 2004- 2005 2005-2006 2006-2007 2007-2008 2008-2009
(estimated)
Source: IBEF
2001 saw outbound investment by Indian companies reach a meagre US$1bn, but
by 2006 this had reached US$10bn, and for the first time in Indian history outstripped
inward investment into the country. From this point, as shown in Figure 1, India’s
outbound deals increased exponentially to the point that Indian foreign investment
between March 2006 and March 2007 was greater than foreign investment by Indian
companies between 1947 and 2005. The first 11 months of 2008 saw 433 M&A deals
worth US$31.95bn with deals in the month of November of that year alone worth
US$3.4bn, compared to US$850m in November 2007. Notable Indian acquisitions
during this period include Apollo Tyre’s US$66m acquisition of Dunlop; Ranbaxy’s
US$70m acquisition of Be-Tabs Pharma; Godrej’s Consumer Products’ US$33.2m
acquisition of South Africa’s Kinky hair products; TCS’ US$505m acquisition of
Citigroup Global Services; HCL Technologies’ US$672m acquisition of Axon – a UK
SAP consulting firm, and Tata Communication’s 30% stake in South Africa’s Neotel.
Globally, there has been a 35% slump in M&A deals as a result of the recession which
has made credit more and more difficult to acquire. Banks now require between 50%
and 90% of the acquiring company’s core assets before considering a loan. India’s
M&As currently stand at US$19.9bn, of which inbound deals were valued at US$12.3
bn and outbound deals were valued at US$7.6 bn This is the lowest level in 3 years
and down 33% from the same time last year.
On the positive side, India’s M&As appear to be on the rise again with March of this
year enjoying nine times as many deals as February of this year, but still much less
than the same time in previous years. In terms of sectors, the most number of deals
have been in the Finance sector, but the Telecommunications has seen the deals of
6
© 2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved
India Business Frontier
India Frontier Advisory
September 2009 Research & Strategy in and beyond emerging markets
the largest value. The sector is also prone to be worth even more if India’s Bharti
Airtel and South Africa’s MTN Group finalise a merger that would see Bharti
owning 49% of MTN and MTN owning 36% of Bharti in a deal that is estimated to
be worth US$23bn and result in 200m users in 21 countries.
2008
2007
2006
Years
2005
2004
2003
While the recession may have been a bump in India’s M&A journey, it has also
given rise to many opportunities as companies become financially vulnerable
and more open to India’s advances. We expect this trend to continue as Indian
companies extend their influence to all corners of the globe, while – as Tata’s
adage goes – maintaining their spirit of “benevolent capitalism and intensive
community involvement”.
7
© 2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved
India Business Frontier
India Frontier Advisory
September 2009 Research & Strategy in and beyond emerging markets
ABOUT US
Frontier Advisory (Pty) Ltd is a research and strategy company that assists clients to enter and
operate in emerging market economies. We have worked with an array of multinational firms,
small & medium enterprises as well as public sector clients and have assisted them to analyse,
formulate and execute their business strategies in these new markets.
Frontier and emerging economies offer new investment opportunities for companies and are
fast providing new markets for traditional market capital, technology and management expertise.
These economies not only pose new challenges to business but also greater commercial potential.
Our firm’s professional services serve to offset the risk that is inherent in these countries – whether
in the BRIC countries or second or third tier emerging markets.
Within the firm, there are four dedicated business units that include China Frontier Advisory, India
Frontier Advisory, Africa Frontier Advisory and Latin America Frontier Advisory. Our diverse and
international team is well positioned to serve clients’ needs based upon their knowledge and
operational experience and emerging markets.
CONTACT US
PO Box 1884
Killarney
2193
South Africa