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Telecom, inflation, wind-power & more - Views on News from Equitymaster
 
 
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  • May 26, 2008

    Telecom, inflation, wind-power & more

    Bharti drops MTN call
    Bharti, India's largest mobile services company, has dropped its plans of forming an alliance with MTN, South Africa's second largest. The former has cited differences in the proposed structure as the reason for backing out from what could have been the largest acquisition ever made by any Indian or an Asian company. If combined, the two companies would have had a market value of over US$ 70 bn and a subscriber base of nearly 140 m spread across Asia, Africa and the Middle East.

  • Bharti Airtel is lively at 60!

    As reported on Bloomberg, Bharti ended the talks late last week after MTN presented a new structure in which the former would become a subsidiary of the South African company. Subsequently, the Bharti family and Singapore Telecommunications Ltd. (which holds 30.5% stake in Bharti) would have had to exchange their majority stake in the former for a controlling stake in MTN, as per the proposed structure from the African firm. Now, while Vodafone (the world's largest mobile company by revenue) has denied bidding for MTN, Bharti's departure has opened gates for other possible suitors like India's Reliance Communications (RCOM) and UAE's Emirates Telecommunications.

    If one were to go by a report published by the International Herald Tribune, RCOM has in fact expressed its interest in MTN. The former is, incidentally smaller than the latter in terms of market value (US$ 10 bn lower market cap) and subscriber base (20 m lesser number of subscribers), unlike its bigger peer Bharti that was on an equal footing with the African telco. Bharti and Reliance Communication (RCOM) have been competing aggressively against each other in the domestic market.

    Inflation inflated!
    "Indians are getting stronger. Twenty years ago it took two people to carry Rs 100 worth of groceries. Today, a 5 year old can do it." This is an Indianised version of Henny Youngman's quote on the Americans. No other quote on inflation can be more practical than this. And it is very true in context of the inflationary situation that India is facing currently, which has seen consistently higher prices for items like food, clothing and shelter (roti, kapda aur makaan). If this were not enough, the inflation number is in itself seeing 'inflation'!

    As measured by the Wholesale Price Index or the WPI) for the week ended March 15 2008, inflation has been revised upwards from 6.68% to 8.02%. This makes it the highest inflation since September 2004 (when inflation had touched 7.9%. This revision might ring louder alarm bells for the Reserve Bank of India (RBI), which has already been proactive in handling the demon of rising prices by tightening cash conditions to contain inflation-inducing funds into the system. One such tightening measure (CRR hike of 0.25%) took effect on Saturday, May 24th.

  • RBI's fears are now real

    Rising inflation has the seeds of stalling economic growth. But even this depends on various factors like the level of capacity utilisation of the industrial sector in the country, employment levels and competition. If manufacturers are operating in an economy where supply exceeds demand, the ability to increase prices of goods when input costs are rising is limited. Take the case of the Indian auto industry. Even though steel prices have rocketed in the last two years, the prices of cars have not followed suit to that extent (this is a global phenomenon as well).

    Windy times ahead
    The International Herald Tribune reports that wind power is gaining advocates in the US, the world's second biggest polluter after China. While only 1% of US electricity comes from wind, it is attracting so much support in that country that many in the industry believe it is poised for growth.

    The report goes on to state that 'last year, a record 3,100 turbines were installed across 34 US states, and another 2,000 turbines are now under construction from California to Massachusetts." In all, there are more than 25,000 turbines in operation in the US, set up with an investment of US$ 15 bn. Last week, the US Energy Department has indicated that, by 2030, wind power could provide 20% of US electricity, or 304 gigawatts (GW), up from the current set up of 16.8 GW (a compounded annual rise of 14% in wind power capacity).

    Indian wind power equipment suppliers like Suzlon Energy are already charting the path to opportunities in the global markets, including the US, Europe and China. The US is, in fact, one of the company's largest markets and it had set up a manufacturing capacity there in 2006. However, while the opportunity for the company is huge, these come with a set of constraints like that of key equipment supply and logistics. Then, the company had recently faced breakage issues with some of its wind turbines in the US, for which it had to set aside Rs 1 bn as provisions.

  • Global winds blowing hard for Suzlon

    Gandhi goes American
    Rights for the English version of 'Gandhi, My Father', a film based on Mahatma Gandhi's relation with his estranged son, was recently acquired by Hollywood based Lionsgate Studio. The film is all set to be released in the US as part of a strategic deal between this company and India's Eros International.

    Economic and media deregulation has opened up the Indian film industry to new configurations of production, distribution, and consumption. In fact, over the past two years, major Hollywood studios have made inroads into the Indian film industry by striking sizable deals with various Bollywood film corporations. Some of the recent examples include Disney's buy-out of a 33% stake in UTV, Sony's proposed Rs 2.5 bn deal with Pritish Nandy Corporation, and now Reliance Big Entertainment's deal with some US production houses. Way to go, Bollywood!

  • What could slow down Indian media?

    Today's Investing Mantra
    The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage." - Warren Buffett

  • Some more lessons from Buffett

     

     

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