Analysis, guides and explainers on India's unlisted market — from IPO pipelines to ESOP liquidity.
<span style="font-size: 12pt;">a) Today is the historic day for IBC( Insolvency & Bankruptcy Code) as the Essar Steel case was resolved after two years of long battle. This is important as the debt involved was ~Rs.42000 Crores. This is one of the biggest recoveries for the IBC to date. With this money coming back into the system, the balance sheet of the banks will improve. Especially for SBI, which has lent ~Rs.15000 Crores to Essar Steel. The resolution of such NPAs will impact positively to the overall growth of the economy. The banks will get more money in their hands to lend to different projects which will drive the growth in the coming time.</span> <span style="font-size: 12pt;">b) After the acquisition, Arcelor Mittal will hold 60% shares and Nippon Steel will hold 40% shares.</span> <span style="font-size: 12pt;">c) The company will also invest Rs.8000 Crores more into Essar Steel for the operational working of the company.</span> <span style="font-size: 12pt;">d) This early acquisition is good news for the shareholders of the company as they will get professional management and value for their investment in the coming time.</span>
There are a lot of misconceptions and queries regarding <strong>Pre IPO shares</strong> in the market. Many investors are confused between Pre-IPO shares, Unlisted Shares, delisted shares, etc and many other related queries. So to unearth all these queries, today we are presenting a questionnaire to understand all of these in a better way. <h4>1. What are Pre-IPO shares, Unlisted and De-listed Shares?</h4> <strong>(i) Pre IPO Shares</strong>: Every company needs funds to run the business. Funds are raised via debt or Equity. When funds are raised via Equity, the investors who are investing in the company want a good return of their investment. Let us suppose investors have invested Rs.500 Crores in the company. Now after 5 years they want to take exit and handover company shares to other investors. So accordingly, the company plans for IPO to give exit to these investors and generally such information comes in media. Before the launch of such IPOs, we at <strong>UnlistedZone</strong> arrange Pre-IPO shares to our investors. <strong>Benefits of <em>Pre IPO Shares</em>:</strong> These days, due to more awareness via social media/news-papers/news channels, IPOs receives a lot of attention and good IPOs are subscribed heavily. Therefore, getting a single lot in IPO is very difficult. Here, the <strong>Pre-IPO shares</strong> play a vital role. You can purchase these shares well below the IPO price before it actually launches on exchanges and gets the maximum benefit. The only lacuna in Pre-IPO shares is that there is a lock-in period of six months. It means you can’t sell stocks before six months from the date of listing. However, we at <strong>UnlistedZone</strong> consider that this should not be an issue because it is a well-known phenomenon that equity always rewards its investors who invest for a longer duration. <strong>Ex</strong>: Nazara Tech, Barbeque Nation, Studds, Chennai Super Kings, HDB, UTI AMC, Fino-Paytech, Suryoday Small Fin Bank, Utkarsh SFB, etc. <strong>(ii) Unlisted Shares:</strong> Unlisted shares simply mean which is not listed on National stock exchanges like NSE or BSE and they don’t have nearby plans for IPO. There are a lot of good companies in the unlisted space which gives a very good dividend to its investors. Such unlisted shares are good investment ideas. The liquidity is an issue in these unlisted shares but we at <strong>UnlistedZone</strong> act as a market maker to buy and sell good rated companies. <strong>Ex:</strong> Tata Technologies, Carrier Air Conditioning, etc. are such companies which are good dividend-paying unlisted companies and have not informed any IPO plans in the media. <strong>(iii) Delisted Shares:</strong> The shares are delisted from national stock exchanges like NSE or BSE and currently not trading. The reason could be anything from not adhering to disclosures as per exchanges requirement or management call to delist the company. <strong>Ex:</strong> Essar Oil gets delisted from exchanges in 2015 when it was acquired by the Russian company. Essar Steel and Electrosteel are an example of other such companies. <h4>2. How is Pre-IPO shares priced?</h4> Pre-IPO shares are priced as per demand and supply in the unlisted market in a similar way the shares are priced in the listed market. Though, research and analysis of Pre-IPO shares are available less as compared to listed stocks. We at UnlistedZone try to cover and research all the quality Pre-IPO shares on our platform so that investors can make a wise decision before buying these shares. We also do the valuation of these shares and compare them with listed players in the market to understand where they stand. <h4>3. Can you sell Pre-IPO shares immediately?</h4> No, the Pre-IPO shares have a lock-in period of six months. It means you can’t sell stocks before six months from the date of listing.<strong> </strong> <h4>4. How Pre-IPO shares are taxed?</h4> The Pre-IPO shares are taxed as per STCG or LTCG. <strong>STCG (<2 Years): </strong>If you sell Pre-IPO shares before 2 years of buying, capital gain will be charged as per income tax slab. <strong>LTCG (>2 Years): </strong>If you sell Pre-IPO shares after 2 years of buying, a 20% tax with indexation benefit will be levied. In Pre-IPO shares, you don’t have to pay GST or STT (Security Transaction Tax). <h4>5. How to buy Pre-IPO Shares, Unlisted Shares and Delisted Shares?</h4> We at UnlistedZone provide the facility of buying Pre-IPO, unlisted and delisted shares. The link to buy these shares is mentioned below. <a href="https://unlistedzone.com/procedure-to-buy-and-sell-unlisted-shares-with-unlistedzone/">https://unlistedzone.com/procedure-to-buy-and-sell-unlisted-shares-with-unlistedzone/</a> <h4>6. What is the Client Master Copy?</h4> In the unlisted market, Client Master Report (CMR) Copy is the most important document which is required to buy unlisted and Pre IPO shares. It contains DP ID, Client ID, PAN number, Bank Number, etc. This can be easily obtained by sending an email to the broker and the same is delivered within 2-3 hrs. <h4>7. How to check the credit of Shares?</h4> After 01.04.2019, SEBI has mandated that no physical shares can be sold. If somebody wants to sell its shares, then first, it must be converted into Demat form. So in the unlisted market, shares are always credited in Demat form only. The credit of shares can be checked by downloading the NSDL or CDSL app. <strong>How do you know which app to download: NSDL or CDSL?</strong> By carefully examining the number format of Demat Account we can easily identify whether the stock broker is registered with CDSL or NSDL. <strong>Demat Account</strong> = 16 Characters which has DP ID + Client ID. DP ID is the unique identification of the Broker. Every broker gets a unique number from CDSL or NSDL. Client ID is the unique identification of the Client. Every client gets this unique number which represents his/her portfolio. In CDSL, all these characters are numbers (1234567891234567). The first 8 digits are DP ID and the next 8 digits are Client Id whereas in NSDL the first two characters are letters which are in accordance with the country IN12345678912345), then 6 unique digits for broker and next 8 digits are client ID. <strong>CDSL</strong> = 12345678 (<strong>DP ID</strong>) and 91234567 (<strong>Client ID</strong>). <strong>NSDL</strong> = IN123456 (<strong>DP ID</strong>) and 78912345 (<strong>Client ID</strong>) <script src="chrome-extension://lmnganadkecefnhncokdlaohlkneihio/enable.js"></script><script src="chrome-extension://lmnganadkecefnhncokdlaohlkneihio/enable.js"></script> <script src="chrome-extension://lmnganadkecefnhncokdlaohlkneihio/enable.js"></script><script src="chrome-extension://lmnganadkecefnhncokdlaohlkneihio/enable.js"></script><script src="chrome-extension://lmnganadkecefnhncokdlaohlkneihio/enable.js"></script><script src="chrome-extension://lmnganadkecefnhncokdlaohlkneihio/enable.js"></script><script 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<strong>NOTICE is hereby given that the 10thAnnual General Meeting of shareholders of Kannur International Airport Limited will be held at 10.00 am, on 21 December 2019, Saturday at Dinesh Auditorium, Kannur to transact the following business:</strong> <strong>(i)</strong> Annual Accounts of the Company for the year ended 31 March 2019 together with Directors’ Report and Auditors’ Report thereon.<strong> [ This means shortly we will have the financials data available for FY18-19 of Kannur International Airport. ]</strong> <strong>(ii)</strong> To appoint a Director in place of Sri. E. P. Jayarajan, Hon’ble Minister of Industries, Sports and Youth Affairs, Director who retires by rotation and, being eligible, offers himself for reappointment and, in this regard, to consider and, if thought fit, to pass the following resolution as Ordinary Resolution. <strong>(iii)</strong> To appoint a Director in place of Smt. K. K. Shylaja Teacher, Hon’ble Minister of Health & Social Justice, Director who retires by rotation and, being eligible, offers herself for reappointment and, in this regard, to consider and, if thought fit, to pass the following resolution as Ordinary Resolution:
<strong>IPO News Flash:</strong> As per an article published in moneycontrol today, the company is coming up with an IPO before March-2020. They already got SEBI approval last year in January. <a href="https://www.moneycontrol.com/news/business/companies/barbeque-nation-to-file-drhp-soon-sbi-cap-ambit-cap-roped-in-as-advisers-4719151.html">Read the complete article here</a> <strong>About Barbeque Nation</strong> <strong>(i)</strong> The Barbeque Nation was launched in 2005 by Sayaji Hotels, one of their promoters. <strong>(ii)</strong> Barbeque Nation Restaurants is one of India's leading casual dining restaurant chains having headquarter in Bangalore. <strong>(iii)</strong> In the last 10 years, Barbeque Nation Restaurant has steadily grown from a single restaurant in 2007 to 81 Barbeque Nation Restaurants in 42 cities in India and one restaurant in Dubai in 2017. <strong>(iv)</strong> The Pioneer of “<strong>Live Grills</strong>” had made Barbeque Nation a place to visit for food lovers across India. They offer a wide range of vegetarian and non-vegetarian appetizers and main courses, a popular dessert menu, a pleasant and casual dining environment, and prompt service. <strong>(v)</strong> The APC (excluding taxes and service charges) at the Barbeque Nation Restaurants has grown from ₹617 in Fiscal 2013 to ₹702 in Fiscal 2017. <strong>Investors in the Barbeque Nation</strong> <strong>(i)</strong> Tamara Private Limited <strong>(ii)</strong> Pace Private Limited <strong>(iii)</strong> Alchemy India Long Term Fund ( Rakesh Jhunjhunwala ) <strong>Private Placement</strong> In F18-19, the company has issued 3.85 lakh shares to FIP( <strong>Foreign Portfolio Investors</strong>) at Rs. 827 per share. Source: Annual Report Of Barbeque Nation <strong><span style="font-size: 14pt;">Financials</span></strong> <table> <tbody> <tr> <td width="64"><strong>Year</strong></td> <td width="64"><strong>Revenue</strong></td> <td width="64"><strong>EBITDA</strong></td> <td width="97"><strong>Finance Cost</strong></td> <td width="83"><strong>PAT</strong></td> <td width="64"><strong>OPM</strong></td> <td width="64"><strong>NPM</strong></td> <td width="64"><strong>EPS</strong></td> </tr> <tr> <td>2015</td> <td>3,040.96</td> <td>474.98</td> <td>84.44</td> <td>134.88</td> <td>16%</td> <td>4%</td> <td>5.07</td> </tr> <tr> <td>2016</td> <td>4,030.51</td> <td>489</td> <td>97.19</td> <td>58.87</td> <td>12%</td> <td>1%</td> <td>2.21</td> </tr> <tr> <td>2017</td> <td>5,034.85</td> <td>668.88</td> <td>143.99</td> <td>102.41</td> <td>13%</td> <td>2%</td> <td>3.8</td> </tr> <tr> <td>2018</td> <td>5,094.48</td> <td>823.94</td> <td>184.36</td> <td>148.41</td> <td>16%</td> <td>2.9%</td> <td>5.49</td> </tr> <tr> <td>2019</td> <td>7,425.41</td> <td>777.31</td> <td>168.72</td> <td>-109.66</td> <td>10.4%</td> <td>NA</td> <td>-3.92</td> </tr> </tbody> </table>
Yesterday, RBI has come up with the final guidelines to tap the opportunity available in a small finance banking license. <span style="text-decoration: underline;"><a href="https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=3797">Read the guidelines in detail. </a></span> <span style="font-size: 14pt;"><strong>Objective of setting up Small Finance Bank(SFB):</strong></span> <strong>(i)</strong> provision of savings vehicles primarily to unserved and underserved sections of the population. <strong>(ii)</strong> supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganized sector entities, through high technology-low cost operations. As the above objectives can't be served with existing Commercial and PSU banks. <span style="font-size: 14pt;"><strong>Eligibility Criteria</strong></span> (i) Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level. <strong>(ii)</strong> Companies and Societies in the private sector, that are owned and controlled by residents (as defined in FEMA Regulations, as amended from time to time), and having a successful track record of running their businesses for at least a period of five years. <strong>(iii)</strong> Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) in the private sector, that are controlled by residents (as defined in FEMA Regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of five years. <strong>(iv)</strong> Existing Payments Banks (PBs) which are controlled by residents and have completed five years of operations are also eligible for conversion into small finance banks. The fourth point above is a very good opportunity for unlisted companies such as <strong>Paytm Payments Bank</strong> and <strong>Fino-Payment Bank </strong>to set up Small Finance Banking License. Paytm Payments Bank has started its operation in 2017. So it will become eligible in 2022. Fino-Payments Bank Limited has started on June 30, 2017. So it will also eligible in 2022. <span style="font-size: 14pt;"><strong>Business Model of Payments Banks</strong></span> <strong>1</strong>. Payment Bank can't accept a deposit of more than 1 lakh from customers and moreover, they can't lend to anyone, as in a case of banks. They can only deposit to Govt securities( 75%) and commercial banks( 25%). From there it earns interest rates of approx 6-7%. This is one way of revenue source. <strong>Paytm Payments Bank</strong> has a total deposit of Rs.2142 Crores in FY18-19 up from Rs.1444 Crores last year. In FY18-19, it has earned an interest of Rs.142 Crores which is up from Rs.67 Crores last year. It has made a profit of Rs.19.2 Crores in FY18-19 as compared to a loss of Rs.20 Crores last year. The data is compiled from regulatory filings. <strong>2</strong>. Apart from this, they earn revenue from a commission by cross-selling mutual funds, insurance products to their clients. Apart from this, it also makes revenue from wallet utilization. <strong>Paytm Payments Bank</strong> in FY18-19 has earned a revenue of Rs.1525 Crores which is up from 654 Crores last year from the commission, exchange, and brokerage income. <strong><span style="font-size: 14pt;">UnlistedZone Take</span></strong> The business model of Payments bank is not as lucrative as the small finance banking license. So tapping SFBs opportunity on time will open gateway into the big size Indian financial market. Vijay Shekhar, Founder of Paytm, a few months back looking to buying stakes in Yes Bank, which shows his keenness to get into the full-fledged banking industry and this would be a golden chance.
As per the news published in CNBC-TV18 today, the UTI AMC board has approved selling off 8.25% stakes in the upcoming IPO. <strong>a)</strong> UTI AMC will offer for sale up to 1,04,59,949 equity shares to the public. <strong>b)</strong> As per the report, SBI is looking forward to divesting its stakes in the IPO. It currently holds 18.24% stakes in UTI AMC along with LIC, Bank of Baroda and PNB, other stakeholders, in equal proportion. <strong>c)</strong> T-ROWE Price is the biggest shareholder in the UTI AMC with 26% stakes. <strong>About UTI AMC</strong> UTI AMC is today a household name in India and has a wide portfolio to suit the varied needs of investors supported by industry-led best practices, long-term vision, and shareholder values. With 150 branches, 47,000 highly trained IFAs, 320 Chief Agents and Business Development Associates and over 1 crore investor accounts, UTI AMC is one of the leading financial institutions with a pan Indian presence. As of 30.07.2019, the company is currently having an AUM of 1,59,764 Crore. <strong>Financials:</strong> PAT has grown from 232 Crores in FY15-16 to 492 Crores in FY18-19. <strong>Valuation of AMCs:</strong> <table style="width: 73.2463%;" width="460"> <tbody> <tr> <td style="text-align: center; width: 16.7241%;" width="82"><strong>Company</strong></td> <td style="text-align: center; width: 7.96786%;" width="64"><strong> Price</strong></td> <td style="text-align: center; width: 8.18553%;" width="84"><strong>Mcap(cr)</strong></td> <td style="text-align: center; width: 9.69532%;" width="78"><strong>AUM(cr)</strong></td> <td style="text-align: center; width: 23.5637%;" width="88"><strong>Mcap /AUM</strong></td> </tr> <tr> <td style="text-align: center; width: 16.7241%;" width="82">Nippon</td> <td style="text-align: center; width: 7.96786%;" width="64">350</td> <td style="text-align: center; width: 8.18553%;" width="84">21486</td> <td style="text-align: center; width: 9.69532%;" width="78">209484</td> <td style="text-align: center; width: 23.5637%;" width="88">10%</td> </tr> <tr> <td style="text-align: center; width: 16.7241%;" width="82">HDFC</td> <td style="text-align: center; width: 7.96786%;" width="64">2610</td> <td style="text-align: center; width: 8.18553%;" width="84">68057</td> <td style="text-align: center; width: 9.69532%;" width="78">375560</td> <td style="text-align: center; width: 23.5637%;" width="88">18%</td> </tr> <tr> <td style="text-align: center; width: 16.7241%;" width="82">UTI</td> <td style="text-align: center; width: 7.96786%;" width="64">960</td> <td style="text-align: center; width: 8.18553%;" width="84">12171</td> <td style="text-align: center; width: 9.69532%;" width="78">159764</td> <td style="text-align: center; width: 23.5637%;" width="88">7%</td> </tr> </tbody> </table> <strong>Conclusion:</strong> UTI AMC at present is the cheapest among the listed AMCs.
<strong>(i)</strong> Nazara tech is one of the leading mobile games companies headquartered in Mumbai, which is engaged in the acquisition of, value addition to and distribution, of mobile games across emerging markets such as India, the Middle East, Africa, South East Asia, and Latin America. The Company operations comprise of a <strong>Subscription business</strong>, <strong>Freemium business</strong>, and <strong>Esports business.</strong> <strong>(ii)</strong> As per the news published in Moneycontrol today, the company is looking to invest 140 Crores next year in India, the Middle East, and Africa. It has already invested 350 Crores in 13 start-ups in the last two years. <strong>(iii)</strong> Let us see the list of Start-ups that Nazara has acquired in recent years. <span style="font-size: 14pt;"><strong>a)</strong><span style="text-decoration: underline;"> <a href="https://bakbuck.com/">Nazara Technologies invests in BakBuck, a social contesting platform targeting the next 10 Crores Indian women.[ 07-05-2019 ]</a></span></span> Nazara Technologies Ltd. has invested an undisclosed amount in Bakbuck, a vernacular social contesting platform operated by Khichadi Technologies Pvt. Ltd. Currently available in Hindi, Bakbuck plans to expand to 10 more Indian languages soon. Bakbuck offers Indian women all over the country a safe and social platform to compete and participate in knowledge/skill based social contests and ultra-casual Indian games. This entire experience gives them the thrill and joy of learning, winning, and much-desired recognition in the digital world. Additionally, winners get the opportunity to claim gifts of their choice or donate for a noble cause on the app itself in exchange of points earned via different gameplay. <span style="font-size: 14pt;"><strong>b)</strong> <span style="text-decoration: underline;"><a href="https://www.sportskeeda.com/">Nazara Technologies acquires a majority stake in Sportskeeda.[21-08-2019 ]</a></span></span> Nazara Technologies Ltd. a leading global interactive gaming and sports media company have invested an approx. 44 crores and acquired a 67% stake in Sportskeeda, a sports media platform. With this investment, Nazara adds 25 million monthly active users and closes in on 100 million monthly active users on its network. Sportskeeda was formerly backed by Seedfund, an early-stage venture capital company with an investment amount of approximately 6 crores in 2012. Today, Sportskeeda curates over 10,000 articles per month, crowdsourced from a network of top journalists and serves personalized content to over 25 million+ monthly active users globally. Sportskeeda covers mainstream sports like football, cricket, esports, basketball, kabaddi, WWE, MMA and more<strong>.</strong> <span style="font-size: 14pt;"><strong>c)</strong><span style="text-decoration: underline;"> <a href="https://www.halaplay.com/home">Nazara Technologies Ltd. and Delta Corp Ltd. invest INR 40 crores in HalaPlay.[ 18-03-2019 ]</a></span></span> Nazara Technologies Ltd., India’s leading gaming company and Delta Corp Ltd. India based casino gaming company, together with invest INR 40 Crores as part of Series-A funding round in HalaPlay, an online Daily Fantasy Sports platform. Halaplay is a real money based daily fantasy sports platform. HalaPlay launched in 2017, has seen explosive growth in the user base and total transactions since then. HalaPlay has in the past received investment from Nazara Technologies, Kae Capital, Angel List, and other angel investors and is currently set to be the second-largest Daily Fantasy Sports (DFS) platform in India. Halaplay has seen 10x user growth in the last 12 months and will exponentially grow with over 1 crore active players to play in the upcoming cricket season. Nazara Technologies will leverage its network of more than 10 Crores active users in its platform to increase its revenue in the coming years after the acquisition of these start-ups. The financial performance of Nazara Technologies was timid in the year 2018-19 owing to a reduction in the revenue from subscription business due to consolidation in the telecom business after JIO entry. However, now the company is focussing more on the Freemium and E-sports segment to grow its revenue and good growth is expected in the coming years when these start-ups start contributing. <strong>We at UnlistedZone believe that the company is in acquisition mode and slowly trying to grab the opportunity available in the nascent gaming market in India so as to become the leading player in the gaming segment. </strong>
<strong><span style="font-size: 14pt;">1. SEBI may relax norms for selling debt security on Exchanges!</span></strong> As per the news published in ET, the SEBI may relax norms for unlisted companies to sell debt security on exchanges (BSE or NSE). Let us understand this. As of now, if any unlisted company wants to raise money by selling its debt security on the exchanges, have to comply with almost similar SEBI rules and regulation as required in case of equity shares listing on exchanges. This discourages unlisted companies to raise money by listing its debt security and this is a big opportunity lost for good unlisted companies to raise easy and cheap funds. “<em><strong>As per suggestions, SEBI may exempt Insider Trading rules, statutory auditor norms, and increase of filling financial results to one year from the current 6 months</strong></em>.” <strong>Capital Small Finance Bank</strong>, the unlisted company, has already raised money by selling its debt security to the exchanges. This is the reason why Capital Small Finance Bank always gives 6month's financial results to BSE and the same is uploaded on the website. Listing of a debt security by an unlisted company is good news for investors as they get regular updates/disclosures from a company as they have to comply with a lot of listing requirements. This increases transparency. <strong><span style="font-size: 14pt;">2. Steel prices are all set to rise!</span></strong> The Steel price is set to increase by Rs.1000-1500 per ton. Oct-March is always been a strong quarter for demand in steel as Infrastructure activity picks up pace. This is positive news for <strong>Essar Steel</strong>, the unlisted company, which is acquired by Arcelor Mittal and Nippon steel in the joint venture.
<strong>(i)</strong> NCL Buildtek Limited <b>(the “Company”) </b>had obtained the approval of members of the Company, at the Annual General Meeting (“AGM”) held on September 28, 2019,for the issuance of Bonus Shares in the ratio of 1:1 i.e., 1 (one) fully paid-up equity share of Rs.10/- each for every (one) fully paid-up equity share of Rs.10/- each held by them in this Company. <strong>(ii)</strong> The Board of Directors of the Company has fixed<b> <u>Friday, 06th December 2019</u> </b>as the Record date for determining the list of shareholders entitled to receive the bonus shares. <span style="color: #000000; font-family: arial, sans-serif;"><strong>(iii)</strong> For any queries, clarifications or assistance relating to the procedure for dematerialization, please feel free to contact U.Divya Bharathi, the Company Secretary by email or phone at </span><b>Email: </b><b><a href="mailto:[email protected]" target="_blank" rel="noopener noreferrer">companysecretary@<wbr />nclseccolor.com</a> </b><b>or Phone: 040 –68313333/346.</b> <strong>(iv)</strong> We at UnlistedZone believes this bonus issue must be the preparation before launching an IPO.
Paytm, the Indian unicorn in the digital wallet has secured a funding of $1Billion( Rs. 7000 cr) from the US asset manager T Row Price along with existing investors, Softbank and Ant Financials,<strong><a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/paytm-gets-1-billion-topup-in-latest-financing-round/articleshow/72216174.cms"> <u>as per the news published in, The Economic Times</u>.</a></strong> However, this funding has come up with clear instruction from investors, make the company profitable and bring IPO in the next 5 years, else they will be forced to sell their stakes to the rival company in the same business. The Indian start-ups like Oyo, Ola, Zomato, Swiggy, Paytm, etc. were burning cash from the start and focussing on capturing market share. They stayed afloat in the market due to continuous funding from investors. In the last 4-5 years, the Indian start-ups have seen valuation going in bubble state in spite of the companies not making any profit. We can say the private equity market was in bull state. However, the failure of We Work IPO and timid performance of Uber after listing has raised the question among the investors regarding the hefty valuation these start-ups command amidst continuous losses. Now every investor who is giving funding is asking the management of these companies to focus on generating cash instead of burning. The next 3-4 years would be, make and break for these start-ups. Coming back to Paytm, it has raised $1Billion at a hefty valuation of $16Billion ( Rs. 1.12 lakh crores) of market cap. To put this in context how big this valuation is, TCS the old Indian IT giant has a market cap of ~7 lakh crores and Reliance Industries, has a market cap of ~9 lakh crores. The Zomato has a market cap of ~$3.5 Billion, OYO has ~$10Billion, and OLA has ~$6.2Billion. Paytm, in the FY18-19, has made a loss of ~4000 Crores on the revenue of ~3300 Crores. The company is spending mainly on advertisements and discounts. The Paytm is facing stiff competition from Google Tej, Walmart backed Phone-Pay and Amazon Pay. However, the founder Vijay Shekhar is very much confident about the prospect of the company. He further stressed that certain businesses within Paytm, including payments and ticketing, are in the process of breaking even and hoping to make it profitable in the next couple of years.
ArcelorMittal's shares rose by 2.5percent on Friday, the day the Supreme Court cleared its acquisition of Essar Steel. That reaction may seem optimistic since its acquisition coincides with a rather difficult period for the global steel industry. Demand conditions have turned weak and so have steel prices even as the uncertainty due to the US-China trade war continues to linger. ArcelorMittal's bid for Essar Steel was valued over two years ago, when market conditions were far more favorable. But its investors have good reason to be optimistic. Gaining a foothold in India's attractive steel market India is one of the fastest-growing large markets for steel in the world. Sure, demand growth has slowed down in 2019 due to a poor outlook for sectors such as automobiles and real estate. But it's still robust at a projected 5percent in 2019 compared to 0.2percent for the world ex-China and 3.9percent if you include China. The European Union, where ArcelorMittal is headquartered is expected to see a 1.2percent decline. There is also the matter of global steel and mining companies finding it nearly impossible to secure a foothold in primary steel-making in India. They have had to be content with steel processing and marketing centers. That makes this acquisition significant, as the largest steel-maker in the world, with an output of 96.4mn tonnes in 2018, just a tad short of all of India's 96.7mn tonnes, has added about 7mn tonnes of steel output in India to its kitty. <span style="font-size: 14pt;"><strong>The acquisition structure</strong></span> ArcelorMittal and Nippon Steel will execute this acquisition through a joint venture to be formed with a debt-equity ratio of 2:1. While their respective equity share has not been disclosed, ArcelorMittal had said it expects the JV to be accounted for in the equity method. That is, it will be accounted for as an investment, and not a line-by-line addition on consolidation in which all costs and expenses, and all balance sheet items are included. Typically, in the equity method, the share of profit or loss attributable to ArcelorMittal will be included in its profit and loss account, and the value of the investment will reflect in its balance sheet. It could, therefore, be an equal JV with the sharing of management control. The ArcelorMittal JV will pay Rs42000crore as part of the resolution plan for Essar Steel. ArcelorMittal on its own has paid Rs 7469crore to the debtors of Uttam Galva and KSS Petron to become eligible as per the IBC law. The JV will also invest an additional Rs8000crore in Essar Steel, to meet its CAPEX and working capital requirements. In return, the ArcelorMittal JV will get a flat steel plant located on India's western coast, with a rated steel-making capacity of 10million tonnes. The location means it can access raw materials and export goods easily. It is also in the proximity of steel markets in adjoining states. <span style="font-size: 14pt;"><strong>Making the acquisition work</strong></span> A problem that ArcelorMittal will seek to fix is Essar Steel's under-utilized capacity levels. Against its rated capacity, it produced only 6.5mn tonnes of steel when the bids were invited but that has increased to nearly 7mn tonnes now. The ArcelorMittal JV will seek to increase this output to 8.5mn tonnes in the medium term, for which the Rs8000crore investment will be useful. In the longer run, it proposes to increase output to 12-15mn tonnes. The success of this plan will be crucial to give the ArcelorMittal JV good returns on its investment. What is crucial is its success in removing the bottlenecks that are standing in the way of Essar Steel attaining higher utilization levels. But that's not all. Higher output from Essar Steel may lead to an oversupplied domestic market and that could affect prices. Domestic steel producers enjoy a premium over imported steel prices. Market conditions are soft, especially for hot-rolled coils because of the declining output of automobiles and slowing of consumer durable offtake. Higher output during this period could put a further strain on prices unless production is exported. But exports don't fetch the same margins that domestic sales do. If steel prices fall, then margins will take a hit and that's a risk for the entire industry. Further, there are several infrastructure and utilities linked to the steel plant and that is under control of the Essar group. One such case is that of a company that owns the slurry pipeline, Odisha Slurry Pipeline Infrastructure, which has defaulted on its loans. There are others such as power supply contracts and cargo services contracts at ports. Now, ArcelorMittal could try and acquire some assets or make arrangements with these companies to continue the existing services at existing pricing. Any disruption on this front is a risk for the acquired steel plant. The next few quarters and years should bring more clarity on this aspect. One good development for ArcelorMittal is that the Supreme Court struck down the NCLAT judgment pertaining to the distribution of profits earned during insolvency too. The Supreme Court said the request for proposal provided for profits to remain with the debtor, and therefore the estimated Rs4000crore in Ebitda generated till March 2019 and subsequent profits will remain with Essar Steel. <strong><span style="font-size: 14pt;">Returns on the acquisition and bearing the debt load.</span></strong> The strategic importance of this acquisition for ArcelorMittal is linked to India's growing steel consumption demand. In FY20, the pace of growth has slowed down in line with the economy and that is a concern. The steel industry's growth is linked to both consumption and investment demand growing at a steady pace and while India has promise, the delivery on this front has been a bit patchy. The investments made by companies such as ArcelorMittal are a sign they expect the long term potential to be realized. But the price is stiff, considering the total sum spent on this investment is close to Rs58000crore for a steel plant with a capacity of 7million tonnes. If we take this as enterprise value and the Ebitda it is estimated to have earned during FY19, it works out to an EV/Ebitda of 14.5 times, while ArcelorMittal trades at an EV/Ebitda of 5.2times (source: Yahoo Finance). To make this acquisition work, ArcelorMittal will be hoping to ramp up capacity to the 12-15mn tonne level, with minimal additional investments, which is when the acquisition will begin to make sense as the Ebitda generated will increase significantly. Meanwhile, the acquisition could weigh on its balance sheet, depending on the structuring of the joint venture. A 50:50 equity share may lighten the load. Recently, Moody's changed ArcelorMittal's rating outlook to negative, citing deterioration in its credit profile due to falling steel prices and weak market conditions. It expects its leverage to increase further with the acquisition of Essar Steel. As of June, ArcelorMittal's net debt was $10billion and its investment in Essar Steel stands at about $4.6bn (the payout to debtors of Uttam Galva and KSS Petron and half of Rs 50,000crore), which is a significant addition to the net debt figure. The ArcelorMittal JV could ease the burden by listing Essar Steel in India once the dust settles on the acquisition and the steel cycle improves somewhat. Investors do have a decent appetite for well-managed steel stocks in India, chiefly due to the encouraging long term outlook for steel, and the recent consolidation in the steel industry. While an IPO means ceding some equity stake and managing one more listed entity, it can help lower debt. It can bring other benefits too. Consider this: Hindustan Unilever's market capitalization is 41percent of Unilever's market capitalization. Unilever managed to acquire GSK Consumer Healthcare's India business using equity as consideration. That's an option that could become available to ArcelorMittal as well. <span style="font-size: 14pt;"><strong>Source: Moneycontrol</strong></span>
Yesterday's decision from the Supreme Court is a big relief for creditors who were wandering from the last 2 years, first, in NCLT and then in, Supreme court, to get their dues from Essar Steel. <strong>Essar Steel</strong> is an integrated steel producer with an annual capacity of <strong>10 million tonnes</strong> with a strong presence in intensive steel consuming markets of Asia and North America. However, It has been for long, not been able to pay interest on loans taken from banks. Therefore, in 2017, the banks such as SBI, Canara, ICICI, Punjab National Bank and Standard Chartered had knocked on the door of NCLT to get their money back. <strong>Dues of Banks:</strong> <strong>(i)</strong> State Bank of India = 13220 cr <strong>(ii)</strong> Canara Bank = 3798 cr <strong>(iii)</strong> Punjab National Bank = 2936 Cr <strong>(iv)</strong> Edelweiss ARC = 8266 Cr <strong>(v)</strong> ICICI Bank = 2294 cr During the last two years, the Essar Steel case has seen lots of hiccups. Even after giving a 54000 cr resolution plan by Arcelor Mittal, Ruias the original promoters tried to delay the case by diverting the attention of NCLT court when they claimed to provide a better resolution plan and wants to get back the control of the company. However, <a href="https://economictimes.indiatimes.com/markets/stocks/news/blow-for-ruias-nclt-rejects-plea-challenging-essar-steel-sale-to-arcelormittal/articleshow/70071851.cms?from=mdr">NCLT rejects plea challenging Essar Steel sale to ArcelorMittal by Ruis in March 2019</a> <strong>“</strong>The NCLAT, while approving ArcelorMittal’s bid, was unhappy with the payout given to operational creditors as per the decision given by the Committee of Creditors. Operational creditors to the stressed steel have admitted claims of ₹4,976 crores against which they will receive only ₹1,200 crores under the current resolution plan, while Standard Chartered Bank, one of the formal lenders, said it has claims of ₹3,487 crores against which it will receive ₹60.71 crores. The rest of the RS 42,000 crore would go to the secured lenders.” <strong>Operational Creditors Vs Finacial Creditors?</strong> <strong>"Operational Creditors</strong>”- who provide goods or services including employment to the company. A raw material supplier is an example of the operational creditor. "<strong>Financial Creditors</strong>"- means who have given loans to the company to run its operations or for expansion. The bank is an example of the financial creditor. So accordingly, the NCLAT finally on July 5 gave judgment, that operational creditors should be treated on a par with financial creditors for distribution of funds from ArcelorMittal’s bid in the Essar Steel insolvency case. The appellate tribunal had ordered an equal distribution of funds among all classes of creditors, with financial and operational lenders having claims above ₹1 crore to recover 60.7% of their total dues. For financial creditors, it was a sharp haircut compared to 89.8% as per the CoC’s revised funds distribution plan. This above judgment was against the rule which says the first right on funds are of Secured creditors, then Unsecured creditors and finally to Operational creditors. The financial creditors then went to Supreme Court, and finally, the case has been settled wherein, it has said that “ “The Supreme Court has set aside the NCLAT judgment in Essar Steel case paving the way for distribution of claims as decided by the Committee of Creditors. The SC bench said the adjudicating authority cannot interfere with the commercial decision taken by the CoC and they can at most ask the committee to re-examine the resolution plan”. So, all have been said with regard to Financial and Operational creditors, but what about shareholders' fate? As per the resolution plan, the Arcelor Mittal will infuse Rs.8000 cr in the company for running its operation and make it profitable again. The company is already delisted from the stock exchange and we feel that there is no chance of listing it again. The reason being, the listing requires a lot of compliances and moreover, the company doesn't need funds as of now, the primary reason for knocking the door of exchanges. So existing shareholders can buy/sell their shares in the unlisted market, as we feel the demand will come once the company becomes profitable. However, the picture will be clearer in the coming time and we will keep updating the same here.
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