In this edition, we talk about Vodafone Idea’s follow-on public offering and its significance. We also talk about the RBI’s curbs on Kotak Mahindra Bank as the central bank continues its crackdown on the banking industry, the fraud unearthed by M&M Financial and why Indian spices makers MDH and Everest Masala are in a soup.
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A cat has nine lives, they say. Vodafone Idea Ltd has at least as many, if not more!
Okay, let’s not joke about India’s third-largest mobile-phone operator – in an industry dominated by just two players!
So, why are we talking about Vodafone Idea? You see, the telecom company this week pulled off the biggest follow-on public offering of shares in India thus far. But before we talk more about what it did and why it is important, let’s go back a bit.
Vodafone Idea is barely six years old. It was formed after the merger of Vodafone India and Aditya Birla Group company Idea Cellular in 2018, after billionaire Mukesh Ambani-led Reliance Jio’s brutal price war forced most telecom companies to either shut down or combine with peers. However, Vodafone Idea’s origins go back almost 30 years.
In 1995, when the government first liberalised the sector, the Birlas teamed up with the Tatas and the US-based AT&T to launch a telecom venture. The same year, the Ruia family-led Essar established a mobile telephony business.
Tata Group subsequently set up its own telecom venture while AT&T exited. Idea acquired rival Spice Communications in 2008 and brought on board Malaysian telecom company Axiata as a partner. Axiata eventually exited in 2020.
Meanwhile, Essar first roped in Swiss PTT as a partner and then brought Hong Kong firm Hutchison on board at the turn of century. Hutch exited in 2007, selling its stake to the UK-based Vodafone. Essar also sold its stake to Vodafone in 2011.
Now that the history lesson is over, we come back to present. Vodafone Idea had been tottering on the brink of collapse for the past few years, especially after the Supreme Court ruled in favour of the central government in a dispute related to payments for spectrum. Last year, the government converted some of its dues into equity shares.
Now, the government effectively owns almost a third of Vodafone Idea. But this was not enough to survive given that it still has gross debt of over $25 billion. This week, Vodafone raised Rs 18,000 crore, or about $2.16 billion, via a follow-on public offering. Significantly, it got bids for Rs 88,130 crore, reflecting the investors’ confidence in the company.
The company, which has more than 21.5 crore users, will use this money to roll out its 5G service and expand its 4G coverage. The share sale has given a new lease of life to Vodafone Idea.
Will it be enough to compete with Bharti Airtel and Reliance Jio? To be sure, it looks like a tough task. But India certainly can’t afford to let Vodafone Idea slip into oblivion.
Heat on Kotak Bank
In a blow of sorts to Kotak Mahindra Bank, the Reserve Bank of India (RBI) asked the lender to stop issuing fresh credit cards and onboarding new customers via mobile banking. As of March-end, Kotak Mahindra Bank had issued 59.54 lakh credit cards.
Following the RBI action, the lender’s shares tumbled as much as 13% on Thursday. As the largest shareholder, Uday Kotak, with a stake of almost 26%, the billionaire founder bore the heaviest brunt from the selldown, the most in four years. His wealth declined by $1.3 billion, according to the Bloomberg Billionaires Index. He was worth $14.4 billion as of April 24.
Serious deficiencies and non-compliances in the areas of IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery rigour and drill of Kotak Mahindra Bank prompted strong action from the country’s central bank.
For two years in a row, Kotak Mahindra Bank did not meet the standards set for managing IT risks and ensuring information security, as required by the rules of the RBI. After checking again, the RBI found that the bank still hadn’t fixed these issues, despite being given specific plans to follow. The bank’s reports to the RBI were either not good enough, wrong, or could not be maintained over time.
Kotak Mahindra Bank is the most recent addition to the list of financial service entities that have been reprimanded for multiple shortcomings. There are indications that more entities may face penalties for their negligence, especially if they have ignored warnings and red flags. Additionally, Kotak is not the only one to experience a temporary prohibition on card issuance: in 2020, HDFC Bank, India’s largest bank by market capitalisation, encountered a similar restriction.
In fact, starting from 2020 itself, RBI had imposed operational limitations on HDFC Bank, Paytm Payments Bank, the banking arm of fintech company Paytm, and JM Financial, among others.
Hit by a Fraud
Kotak Mahindra Bank was not the only lender in the news this week for the wrong reasons. Non-banking finance company Mahindra & Mahindra Financial Services Ltd informed the exchanges this week that it was hit by a Rs 150-crore fraud at one of the company’s branches in the North East region. As a result, the company’s board meeting this week to consider earnings for the January-March quarter has now been deferred to May 30.
The fraud pertained to retail vehicle loans disbursed by the company and involved forgery of KYC documents, leading to embezzlement of company’s funds. M&M Finance detected the fraud during the January-March quarter and it was followed by arrest of some people. The people involved included an area business manager and other employees of the concerned branch.
The matter has also been reported to the Reserve Bank of India’s central fraud monitoring cell. The company said investigations are already underway and are at an advanced stage.
Short-circuit
The RBI was not the only regulator in action this week. The capital markets regulator, Securities and Exchange Board of India, has asked a group of global funds to defend themselves against allegations of improper disclosures and market manipulations relating to trading of Adani Group shares.
SEBI is reportedly probing two foreign portfolio investors, including one accused of allegedly shorting stocks in Adani Group companies prior to a report from Hindenburg Research. The capital market regulator is seeking explanations from these two separate groups of foreign funds for “possible rule violations”.
The group, facing market manipulation allegations, is suspected to have shorted stocks in firms led by billionaire Gautam Adani after getting wind that a short seller report would be published soon. The second group of investors faced scrutiny in June 2021 for investing heavily in Adani stocks.
The Adani Group has already denied any association with these funds. The market regulator will issue a final order on new probes after hearing the funds’ explanations. According to reports, the SEBI has accused the funds of failing to maintain and disclose information about their “ultimate beneficial owners as well as for breaching investment limits in listed entities of Adani Group during certain periods”.
What’s cooking?
India, the world’s largest producer, consumer and exporter of spices, this week sought details from food safety regulators of Singapore and Hong Kong, which have banned certain spices of Indian brands MDH and Everest, owing to quality concerns.
India’s commerce ministry has also sought details from the Indian firms — MDH and Everest, whose products have been banned for allegedly containing pesticide ‘ethylene oxide’ beyond permissible limits. Technical details, analytical reports and the details of the exporters whose consignments have been rejected have been sought from embassies at Singapore and Hong Kong. Details have also been sought from Singapore Food Agency and Centre for Food Safety, and Food and Environmental Hygiene Department, Hong Kong. In 2022-23 fiscal, the country exported spices worth nearly Rs 32,000 crore.
Market Wrap
Both the Sensex and the Nifty rallied this week to end in the green. While the Sensex was up nearly 1%, the Nifty did better and rose by 1.2%.
Axis Bank, Tech Mahindra, State Bank of India, Hero Motocorp and Divi’s Labs, were among the top gainers among the Nifty block. Other stocks that also added to the rally included Eicher Motors, JSW Steel, Hindalco, Wipro, Grasim and Power Grid, among others. This indicated that the rally in large cap stocks was broad-based.
Nifty stocks that lost ground in this period included Kotak Mahindra Bank, Tata Consumer Products, Bajaj Finance, Sun Pharma. SBI Life Insurance, IndusInd Bank and HDFC Life.
Earnings snapshot
- Nestle India Jan-March net profit jumps 27% to Rs 934 crore, tops forecasts
- Hindustan Unilever Q4 profit drops nearly 6% to Rs 2,406 crore, misses estimates
- Tata Consumer Products Q4 consolidated revenue rises 8.5% to Rs 3,927 crore but misses forecasts
- Axis Bank tops forecasts as Q4 standalone net profit at Rs 7,130 crore vs year-ago loss
- HDFC Bank posts standalone net profit of Rs 16,512 crore, lags estimates
- Reliance Industries Q4 consolidated profit drops about 2% to Rs 18,951 crore but beats forecasts
- Reliance Jio Infocomm Q4 profit jumps 13.2% to Rs 5,337 crore
- Tech Mahindra misses estimates as Q4 consolidated profit slumps 41% to Rs 661 crore, revenue falls 6.2%
- LTIMindtree misses Q4 estimates as consolidated revenue rises 2.3% to Rs 8,893 crore, profit falls 1.2%
- Tata Elxsi Q4 net profit falls 2.3% to Rs 197 crore, lags forecasts
- Bajaj Finance posts 21% rise in Q4 profit to Rs 3,825 crore
- IndusInd Bank beats Q4 view as profit rises to Rs 2,347 crore from Rs 2,041 crore a year ago
- Adani Group cement firm ACC exceeds Q4 forecasts as profit more than triples
- Vedanta reports 27% drop in Q4 profit, misses forecasts
Other Headlines
- IndiGo orders 30 Airbus A350s for long-haul routes
- Invesco India arm settles charges of mutual fund rule violation with SEBI
- Govt extends RBI deputy governor T. Rabi Sankar’s tenure by a year to May 2025
- Inflation at risk from extreme weather, geopolitical issues, says RBI
- Tesla to lay off 10% of global workforce, to book over $350 million in costs
- IIFL Finance starts RBI-directed audit after gold loan ban in March
- JSW, Amara Raja, Reliance Industries submit bids to set up battery manufacturing gigafactory
- India’s exports of cut and polished diamonds in 2023-24 plunge 27.5% to $15.97 billion
That’s all for this week. Until next week, happy investing!
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