{"id":24632,"date":"2023-06-23T18:00:03","date_gmt":"2023-06-23T12:30:03","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=24632"},"modified":"2023-07-28T12:26:04","modified_gmt":"2023-07-28T06:56:04","slug":"the-weekly-wrap-seize-the-skies","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/the-weekly-wrap-seize-the-skies\/","title":{"rendered":"The Weekly Wrap | Seize the Skies"},"content":{"rendered":"

In this edition, we talk about IndiGo\u2019s mega aircraft order and HDFC\u2019s billion-dollar sale of its education loan arm. We also talk about US companies lining up to invest in India and SEBI cracking the whip on errant traders and brokers.<\/span><\/i><\/em><\/i><\/p>\r\n

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Welcome to Kuvera\u2019s weekly digest on the most critical developments related to business, finance, and the markets.<\/em> \u00a0<\/p>\r\n

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tl;dr<\/strong>\u00a0Hear the article in brief instead? \u00a0<\/p>\r\n

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More than a century ago, Orville Wright made a prediction. \u201cNo flying machine will ever fly from New York to Paris,\u201d he said.<\/span><\/p>\r\n

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It\u2019s hard to imagine today, in 2023, that the younger of the Wright brothers\u2014the pioneers of aviation\u2014would make such a forecast. Of course, his comment reflects the times they lived in and the technological challenges they faced.\u00a0<\/span><\/p>\r\n

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And boy, aren\u2019t we glad his prediction turned out to be untrue! Especially, we the people in India, where travelling can be a tiring and costly affair. But covering the length and breadth of the country has become easier over the past two-three decades thanks to new highways, rail network and\u2014most importantly\u2014the rapid expansion of air travel.<\/span><\/p>\r\n

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Now, air travel is set to boom. At least that\u2019s what India\u2019s top two airlines are betting on.\u00a0<\/span><\/p>\r\n

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IndiGo, the market leader, this week placed orders with European aircraft maker Airbus for 500 planes at the Paris Airshow. This makes it the single-biggest order for jets in global aviation history.<\/span><\/p>\r\n

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Tata Group-owned Air India joined the party a day later. The erstwhile state-owned carrier firmed up a contract to buy 470 Airbus and Boeing aircraft that, until IndiGo\u2019s mega deal, was the industry\u2019s biggest order.<\/span><\/p>\r\n

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Together, these two orders are worth over $100-120 billion at list prices, though airlines often get discounts for bulk contracts. Meanwhile, Akasa Air\u2014the newest entrant\u2014has ordered four aircraft while SpiceJet is also looking to bring more aircraft into its fleet.<\/span><\/p>\r\n

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Overall, Indian carriers are looking to add more than 1,500 aircraft over the next decade. That\u2019s double the current fleet of 700 jets across all airlines in the country. The airlines believe economic expansion, rising incomes and a growing middle class will propel demand for air travel not just within India but also overseas. And they want to be prepared to \u201cseize the skies,\u201d as civil aviation minister Jyotiraditya Scindia said this week.<\/span><\/p>\r\n

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Indeed, the aviation consultancy CAPA India and government estimates show the number of local air passengers is likely to jump to 350 million by 2030 from 144 million in 2019. The number of international travellers is projected to increase to 160 million from 64 million in 2019. The number of airports will also rise, to 200 over the next five years from 150 today. So, sit back, relax and have a wonderful flight!<\/span><\/p>\r\n

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Fire up the engines
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In another aviation-related development this week, the aerospace unit of General Electric said it signed an agreement with state-owned Hindustan Aeronautics to jointly make the F414 engines in India. These engines will power fighter jets for the Indian Air Force, GE said.<\/span><\/p>\r\n

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GE\u2019s announcement coincided with Prime Minister Narendra Modi\u2019s visit this week to the United States, where he met with President Joe Biden and several corporate titans including Tesla and Twitter owner Elon Musk.<\/span><\/p>\r\n

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What makes the GE announcement special?<\/strong><\/p>\r\n

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For more than half a century, India has heavily depended on Russia to beef up its military. But that is slowly changing and the US is now a major supplier of defence equipment to India. The GE-HAL deal will cement those ties.\u00a0<\/span><\/p>\r\n

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How, you may ask? You see, HAL has been attempting to indigenise the manufacturing of fighter jets for more than three decades. But the Tejas light combat aircraft has a major drawback\u2014it relies on foreign-made engines.<\/span><\/p>\r\n

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HAL has been using GE\u2019s F404 engine \u2013 the predecessor of F414 \u2013 for the Tejas Mark 1 jets. The new engines will power the more advanced Tejas Mark 2 jets. That\u2019s not all. India will also use these engines to develop a medium combat aircraft as the air force looks to ramp up its fighter squadrons amid threats from China and Pakistan.<\/span><\/p>\r\n

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The chips are falling in place<\/b><\/strong><\/h4>\r\n

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The GE deal wasn\u2019t the only significant corporate announcement during Modi\u2019s visit to the US.<\/span><\/p>\r\n

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Micron Technology, the U.S. memory chip maker, said this week it would invest up to $825 million to build a chip assembly and test facility in Gujarat. This would be Micron\u2019s first factory in India.<\/span><\/p>\r\n

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The total investment in the facility will be $2.75 billion, with the Indian government contributing 50% of the total and the Gujarat government chipping in (pardon the pun) with 20%. Micron said it will start construction this year itself and operationalise the first phase in late 2024.\u00a0<\/span><\/p>\r\n

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Meanwhile, US semiconductor toolmaker Applied Materials said it would invest $400 million over four years in a new engineering centre in India. The new centre is likely to be located near the company\u2019s existing facility in Bengaluru and will support over $2 billion of planned investments, the company said.<\/span><\/p>\r\n

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Both the announcements are significant in the light of the increased global focus on securing the supply of semiconductors that power everything from laptops and smartphones to automobiles and aircraft. Companies worldwide, including in India, have faced a massive shortage of chips over the past couple of years due to hard lockdowns in China to combat Covid-19 as well as China\u2019s tensions with Taiwan\u2014a chip manufacturing powerhouse.<\/span><\/p>\r\n

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The Indian government, too, has been looking to grow the country\u2019s chip manufacturing capabilities and offering $10 billion in production-linked incentives. So, finally, it appears, the efforts are bearing fruit, or in this case, chips!<\/span><\/p>\r\n

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Learning the lesson\u00a0
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Moving away from the high-flying world of aviation and chips to something more mundane, the week recorded one of the biggest transactions in India\u2019s financial services industry in recent years.<\/span><\/p>\r\n

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Housing Development Finance Corp, the nation\u2019s biggest mortgage lender, agreed to sell a 90% stake in its education loan unit, Credia, to a consortium of private equity firms BPEA EQT and ChrysCapital for Rs 9,060 crore. The two investors will inject another Rs 2,003 crore into Credila to help it expand. HDFC, which will retain a 10% stake in Credila, is selling the bulk of its holding under a regulatory requirement to complete its merger with HDFC Bank.<\/span><\/p>\r\n

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The billion-dollar value isn\u2019t the only significant thing about the deal.<\/strong><\/p>\r\n

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Credila was set up by brothers Ajay and Anil Bohora in 2006. The brothers brought DSP Merrill Lynch on board soon after to expand the business. In 2009, HDFC acquired a 41% stake in Credila from DSP Merrill Lynch for just Rs 10 crore. Yes, you heard it right\u2014Rs 10 crore only! That means Credila was valued at less than Rs 25 crore at the time.<\/span><\/p>\r\n

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HDFC lifted its stake in Credila to 51% a year later and further increased its holding over the years to 90.88%. In December 2019, it bought the remaining 9.12% in Credila from the founder-brothers for Rs 395 crore, valuing the company around Rs 4,300 crore. Even this means Credila\u2019s valuation more than doubled in three-and-a-half years.<\/span><\/p>\r\n

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And here\u2019s more. The size of HDFC\u2019s education loan portfolio was Rs 10-15 crore in 2009. As on March 31, 2023, Credila had a loan book of Rs 15,238 crore.\u00a0<\/span><\/p>\r\n

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Clearly, how HDFC built and grew Credila\u2019s business offers a lesson or two to entrepreneurs, business managers and even common folk like us.<\/span><\/p>\r\n

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Some people, however, need to be a taught a lesson.<\/span><\/p>\r\n

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Teaching a lesson<\/b><\/strong><\/h4>\r\n

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Last week, the Securities and Exchange Board of India barred Zee Entertainment\u2019s father-son promoters Subhash Chandra and Puneet Goenka from holding board positions for fraud. This week, it cracked the whip on many more.<\/span><\/p>\r\n

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On Monday, the capital markets regulator banned the stockbroking unit of IIFL Securities from onboarding any new client for two years. SEBI cited the misuse of client funds that came to light in 2013-2014.<\/span><\/p>\r\n

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SEBI said it inspected the operations of IIFL Securities between April 2011 and January 2017 and found many rule violations, including mixing clients\u2019 funds with its own funds.<\/span><\/p>\r\n

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On Wednesday, SEBI restricted 135 entities from accessing the securities market and fined them about Rs 126 crore for making wrongful gains from alleged stock manipulation of small-cap companies through bulk messages.<\/span><\/p>\r\n

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SEBI said these entities manipulated shares of Mauria Udyog, 7NR Retail, Darjeeling Ropeway, GBL Industries and Vishal Fabrics. The entities first lifted prices of these companies by trading among themselves and then sent \u201cbuy\u201d recommendations to the public through bulk messages via texts and websites and social media. The entities then booked gains as the stocks rose.<\/span><\/p>\r\n

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And on Thursday, SEBI banned Eros Group Managing Director Sunil Arjan Lulla and three group companies\u2014Eros International Media Ltd, Eros Worldwide and Eros Digital from the securities market, citing accounting irregularities. It also banned Eros International CEO Pradeep Kumar Dwivedi.\u00a0<\/span><\/p>\r\n

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The regulator said it found prima facie evidence that the company\u2019s books of accounts were \u201coverstated and do not present a true and fair picture of the financial health\u201d.<\/span><\/p>\r\n

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Market Wrap<\/strong><\/h4>\r\n

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The stock markets<\/a> cooled off a little this week, with the 30-share Sensex ending down about 0.6% and the 50-stock Nifty falling almost 0.8%, as investors took profits after the indices touched record highs.<\/span><\/p>\r\n

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Indian markets have risen over the past few weeks thanks to sustained inflows from foreign portfolio investors. Foreign institutional investors have been net buyers of equities every month since March, pumping in nearly Rs 59,000 crore, or $7.17 billion, data from National Securities Depository Ltd show.<\/span><\/p>\r\n

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Stocks that ended the week in the green included Dr. Reddy\u2019s Labs, HDFC Bank, HDFC and Bharti Airtel. IT companies Tech Mahindra and HCL Technologies, Bajaj Finserv and state-run Power Grid Corp were the other gainers.<\/span><\/p>\r\n

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A bunch of metals, energy and infrastructure stocks lost ground this week. These included BPCL, Indian Oil, Tata Steel, Adani Ports, Hindalco, Grasim, JSW Steel and Ultratech. Zee Entertainment fell more than 5% after a SEBI ban on its promoters raised doubts over its proposed merger with Sony. Others that slipped included Maruti Suzuki, Bajaj Auto, Hero MotoCorp and IT major Wipro.<\/span><\/p>\r\n

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Other headlines<\/b><\/h4>\r\n

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