Vi vs Jio and Airtel, EV bus tender in limbo, Hiremeth-Kalyani family dispute and more

The Federal brings you the latest news in the business world on Monday (April 24).

Vi accuses Jio and Airtel of predatory pricing with the 5G rollout

Telecom operator Vi has complained to the Telecom Regulatory Authority of India (TRAI) that Jio and Airtel’s offer of 5G free for an unlimited time will lead to predatory pricing. According to a report in The Economic Times, this has trigged subscriber churn at the cash-strapped Vi.

What it implies: While Jio and Airtel have rejected the claims of Vi, stating that 5G currently has a small user base and that 5G is part of the 4G pack and is charged accordingly, there has been increasing criticism against the government saying that it is encouraging duopoly. Critics say the spectrum fee is too high for smaller players to bid for them.

At the end of the last year, Airtel had a subscriber market share of 32.16 per cent and Reliance Jio 37.14 per cent, with revenue market share of 37 per cent and 41 per cent, respectively. It means that both the top players own nearly 80 per cent of the market share, leaving little room for the rest to make any dent.

Vi’s subscriber share was 21 per cent, and its revenue market share was 18 per cent as of 2022. With some effective subscriber mix, Airtel and Jio earn more from each leaving Vi subscriber. Viral Acharya, the former deputy governor of the Reserve Bank of India, in his draft paper for the Brookings Institute panel on emerging markets, last month said it is time to dismantle the Big-5, which includes the Tatas, Aditya Birla Group, Adanis, Reliance and Bharti Telecom.

Also read: Vodafone Idea Q3 loss widens to Rs 7,990 cr

He said the government’s “sky-high” tariff had shielded these groups from competition from foreign firms. Acharya, a professor of economics at New York University, Stern School, said the Big-5’s share in total assets of the non-financial sectors rose from 10 per cent in 1991 to nearly 18 per cent in 2021.

In contrast, the share of the next big five (Big 6-10) business groups fell from 18 per cent in 1992 to less than 9 per cent. Hence, he said it would be better to make India more competition-friendly and less incumbent, whether done surgically or gracefully. “An alternative route would be to throw sand in the wheels by making it economically unattractive to remain a large conglomerate.”

“Lack of payment guarantees” from state road transport companies preventing bus makers from bidding for Rs 5000 crore EV bus tender

In January, state-owned Convergence Energy Services Ltd (CESL) floated a tender for 4,675 electric buses worth Rs 5,000 crore. But major bus manufacturers are unwilling to bid for the tender as they fear that financially weak state transport companies may delay payment.

What it implies: A significant reason for financial lenders’ discomfort regarding e-bus procurement by STUs in India is the escrow mechanism within the GCC model. Although the escrow account-based payment mechanism is intended to secure the payment, the operator and the lender find that they effectively do not have any control over the escrow account; rather, the power lies solely with the STU, a study by the Institute for Transportation & Development Policy, India (ITDP India), a global not-for-profit organisation that works with cities worldwide to promote transport solutions that reduce traffic congestion, air pollution, and greenhouse emissions, has said.

The only asset in possession of the lender (within the concession period) would be depreciating assets, such as e-buses and their chargers. Therefore, escrow accounts should be tripartite with the lender, operator and STU. It is recommended to provide two- or three-month payment guarantees to lenders and operators to increase the project’s bankability. This will offer payment securities to operators, thus reducing the cost of financing for electric bus projects, according to ITDP.

Also read: EV adoption levels in India to see exponential growth: KPMG-CII report

The Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme introduced in 2015 gave subsidies to support state transport corporations purchasing e-buses. However, the system had a slow uptake since several state corporations faced funding challenges and needed extra budgets to make direct purchases. As response, the second phase of FAME encouraged a ‘Gross Cost Contract’ (GCC) of procuring e-buses, as per which instead of outright purchases, state transport corporations paid original equipment manufacturers or e-bus operators a per km cost for operations and maintenance.

This model removes the risk associated with new technologies from the STUs and puts the onus of operating and maintaining e-buses on the private player.

Business family dispute: Hikal versus Bharat Forge

In yet another business family dispute, Sughanda Hiremath, a non-executive board member at the pharmaceutical and chemical company Hikal, has claimed that her brother Baba Kalyani, the CMD of Bharat Forge, is attempting to “marginalise and get rid of” her and her husband from Hikal. Kalyani owns 34 per cent of Hikal, while the Hiremaths own about 35 per cent.

What it implies: One of the reasons for some of the business family disputes is that pacts entered into by the founders among family members did not legally ringfence them from any possible future conflicts. In the case of Kalyani-Hikal dispute, a family pact in 1994, which mandates that Kalyani sell the Hiremaths all of his stake in Hikal worth Rs 3,578 crore, is at the centre of the controversy.

Sugandha, in her petition before the Bombay High Court, said the family agreement signed on June 19, 1994, superseded the one signed on October 30, 1993. As a result, the Kalyanis were required to give the Hiremaths their Hikal shares under both agreements.

According to her petition, the agreement between her parents and Kalyani was reached in 1994 at the Taj Mahal Hotel in Mumbai in the presence of N Vaghul, former ICICI Bank chairman, and S S S Nadkarni, former chairman of Sebi. She claimed that her father gave Vaghul a “note” containing the family rules he had written. Later, her mother gave her a copy of the letter. While agreeing that the October 1993 agreement stated that Hikal would go to the Hiremaths, Kalyani claimed that the transfer clause in the 1994 family agreement was “a false claim” by Sugandha.

Kalyani asserted that the discussion at the Taj was about determining who owned Bharat Forge and Kalyani Forge and denied that there had been a Hikal deal in 1994. If the Kalyanis eventually transfer 58 lakh shares constituting 34 per cent of shares, it will cost them Rs 169 crore.

Research report: OPEC says oil demand in India will be driven by air travel recovery and ongoing industrial activity

An OPEC (Organisation of Petroleum Exporting Organisation) report has said oil demand in India for 2023 will be driven by air travel recovery, supported by healthy mobility and continuous industrial activity. The report said jet fuel is expected to lead demand growth, followed by gasoline (petrol) and diesel in the country.

“The (Indian) government’s proposed increase in capital spending is expected to boost the momentum of economic activity, supporting construction and manufacturing activity. Combined with a steady rise in airline activity, these factors will support healthy oil demand growth in 2Q23,” said OPEC in the report.

World oil demand is expected to grow at 2.3 million barrels daily in 2023, aided by healthy demand in some regions, said the report. “In 1Q23, world oil demand is estimated to have grown by a healthy 2.1 mb/d (million barrels per day (bpd)) y-o-y, on the back of a strong rebound in China’s oil demand, as well as solid oil demand data in other non-OECD (Organization for Economic Cooperation and Development ) regions, particularly the Middle East and Asia,” said OPEC.

Also read: Saudi Arabia defends output cut, says OPEC+ doing right job for stable mkt

The oil cartel added that in the second quarter of 2023, global oil demand is expected to grow by around 2.4 million bpd year-on-year. Similarly, oil demand would grow at 2.5 million bpd and 2.3 million bpd in Q3 and Q4 of 2023, respectively, forecasted by OPEC.

“To the OECD, heightened mobility in the upcoming driving season in the US is expected to provide the usual additional demand for transportation fuels. However, any weakening in the economy due to ongoing monetary tightening measures by the US Fed may offset some of this seasonal dynamic,” stated OPEC in the report.

In addition, OPEC said oil demand is expected to grow in non-OECD countries. For example, China is projected to drive oil demand, supported by a pickup in mobility and industrial activity. However, the cartel also highlighted the potential challenges to global economic development, such as high inflation, monetary tightening, stability of financial markets and high sovereign, corporate and private debt levels, which could affect demand.

Book read: The Big Bull of Dalal Street: Rakesh Jhunjhunwala. Penguin Random House. Authors: Neil Borate, Aprajita Sharma, Aditya Kondawar.

‘Respect the market. Have an open mind. Know what to stake. Know when to take a loss. Be responsible,’ this is what Rakesh Jhunjhunwala, India’s iconic stock market investor, often used to say.

This book looks at the life of India’s big bull, as Rakesh was famously known, both as a person and professional. Providing a fascinating account of his journey, it analyses the records of Jhunjhunwala’s investments and interviews he has given over the years. More than just a biography, a large section of the book is devoted to understanding the stocks that made him rich and the mistakes he made.

Looking at the journey of the legendary investor, the book offers retail investors some valuable insights— into the benefits of long-term investing, mistakes one should avoid in the stock market, and risks associated with leveraged trades, among others. (Content courtesy: Penguin Random House).