SEBI has moved quickly to form a group of experts to study the feasibility of Special Purpose Acquisition Companies or SPAC-like structures in India. These have suddenly taken off in a big way in the US. SEBI has asked the expert group to explore the potential of SPACs and also advise on how to build adequate checks and balances in regulatory framework. SPACs are formed merely to raise capital via IPOs and then use the proceeds to merge a target company. For the target company, the SPAC becomes a much shorter and simpler route to list in stringent markets like the US. It may need changes to the Companies Act, 2013.
Kalyan Jewellers fixed its IPO price band at Rs.86-87 for its Rs.1,175 crore IPO. The IPO will consist of Rs.800 crore as fresh issue and Rs.375 crore as offer for sale or OFS. Warburg Pincus is an early-stage investor in Kalyan Jewellers. While 50% of the issue will be reserved for QIBs, 35% will be for retail investors and 15% for non-institutional HNIs. Kalyan had originally planned a much bigger IPO of close to Rs.1,800 crore which was subsequently scaled down. In terms of its business reach, Kalyan Jewellers has a total of 107 showrooms across 21 states. Kalyan derives 35% of its revenues from South India, 30% from the Middle East and the balance from the rest of India. Kalyan designs, manufactures and sells a broad range of gold, studded and other jewellery products. The issue will be used for working capital purposes.
In a significant move, India plans to block its mobile carriers from using telecom equipment manufactured by Huawei of China due to security reasons. The Indian government is wary of awarding new technology business to Chinese companies after the Galwan face-off. While this raises security issues, it is also against the spirit of the Atma Nirbhar program of the government, which is about indigenization. The US has already called for a global ban on use of Huawei equipment. Huawei is likely to feature in the embargo list for procuring telecom equipment. Apart from Huawei, China-based ZTE Corp could also be excluded.
Cabinet has approved changes to the Insurance Act for increasing FDI limit in insurance to 74% from the current 49%. It may be recollected that Nirmala Sitharaman had made this point in the Budget Speech on 01-February, albeit with safeguards. Despite 74% FDI, government has stipulated that majority of the directors on the board and KMPs should be resident Indians. At least half the board will comprise of independent directors. As of Mar-21, the total FDI in 23 life insurance companies stood at 37.41% and the 49% limit had been touched only in 9 insurance companies. It is much lower for non-life insurers.
The Parikh family has confirmed that it had sold its entire stake in ZCL Chemicals to private equity firm Advent International for an enterprise value of Rs.2,000 crore. Parikh family holds 80% stake in ZCL while Morgan Stanley held 20%. While Parikh family sold its 80% stake for Rs.1,610 crore, Morgan Stanley PE sold its 20% stake for Rs.390 crore. Morgan had acquired this stake in 2016 for Rs.150 crore. ZCL, formerly called Zandu Chemicals, is a niche high growth player in the pharmaceutical API space. Interestingly, the Parikh family had bought ZCL for Rs.12.5 crore in 2008, which they are now selling at 160X valuations.
If the Jun-20 quarter and Sep-20 quarter corporate results flattered in terms of growth, profits and margins, the road will be a lot tougher in the fourth quarter ending Mar-21. Some of the major headwinds faced by Indian businesses include rising commodity costs, supply disruptions and concerns over sales momentum in the light of the resurgence of the virus. In addition, the elevated prices of iron and steel and other base metals can put a squeeze on the margins of user industries. There is a fear that if such costs are passed on, it could hurt demand. Another worry is the rising cost of fuel, including petroleum coke and coal; which are important inputs for cement companies. Also, factories are still operating at sub-par PLF capacity due to manpower shortages. OPEC decision on oil supply will be a major overhang.