Non Performing Assets and Business Case Evolution of M&A Prospects in India Volume II

Transcription

1 Non Performing Assets and Business Case Evolution of M&A Prospects in India Volume II Industry wise Status Check for NPA s & Enincon s Due Diligence + Project Tracker (Targeted Sectors Volume II : Iron Steel & Basic Metals, Automobile, Textile, Paper Product, Rubber, Gems & Jewellery, Processing Industry -other than Food, Other Infrastructure) E-REP Market Research Series September 218 enincon consulting llp, 218 Visit: httpss://enincon.com

2 Exhibit 1: Status Track of Non Performing Assets (NPA s) in India Value of NPA s (USD Billion) High Falling ~ 91 USD Billion % CAGR The amount of Gross NPA s in India has witnessed a capacity addition USD 9.5 Billion and has grown at a CAGR of 35% from Dec 213 to Dec Gross NPA Amount (USD Billion) with Banks in India AB AnB UCOB CBI CB SBI IOB ICICI PNB CB IDBI BOI UBI NPA as Percentage of Gross Loans for Major Countries Percentage Share of NPA s in Key Industry Segments Auto India 9.6% 9.4% Russia Growing Mining 21.1 Infra 18.3 Basic Metal Cement Engineering 24.5 Chemical China 1.7% (1%) Australia Indonesia US 1.1% 2.9% UK 1% Indonesia 1.3% Malaysia 1.2% South Africa 2.9% Canada.5% Brazil 3.9% Low High but Falling High & Growing Falling & Low Falling but High Growing but Low Growing & High Low & Falling Low but Growing Construction Source: World Bank, Market Feed, enincon research enincon consulting llp, 218 Visit: httpss://enincon.com

3 Why enincon s report upon Evaluating Business Case in Non Performing Assets? BLESSING IN DISGUISE! AS THE NON PERFORMING ASSETS (NPA s) IN INDIA LIKELY TO DE - STRESS WITH GROWING OCURRANCE OF M&A ACTIVITIES AND ROPING FRESH INVESTMENTS USD 14 Billion of Serious Investment Opportunity Exists in India under Non Performing Assets Category The incidents of NPA s has witnessed an aggressive growth in India since FY 213, as the same has inflated to USD Billion in Dec 217 against a value of USD 38.8 Billion observed in Dec 213. Sounds contrary to the country s economic situation which boasts India amongst the fastest growth economies of the world. Ironically, the growth rate is not only fast paced for high economic activities but also for the watch list of projects which has seen consistent rise from FY 213. Natural to the swelling of number of projects falling under watch list, the gross NPA s have been on the rise for all the major industry facets for the country which canvasses a worrisome landscape for the banks and lending bodies. Having said that, with each fall there is an associated rise consequently suggesting an opportunity for players eyeing strategic investments and collative expansion in the untamed demography of India. To unmask, this opportunity presented an ideal scope for our sector specialists and consultants to engage into an in depth study so that the diligence required is duly comprehended. Enincon envisaged to discover industry specific opportunity for those segments which are leaders in the pie for NPA s and do project an outlook for assets transcending from watch list to stressed category and further to NPA s with fresh norms announced by RBI for the stressed assets (if found implemented) shall see more assets falling under NPA s. Arguably, the M&A drive typically involves exhaustive multi layered diligence for which market research expertise is required and mostly is the missing link to justify the drive. Identifying the missing link, enincon s team engaged to first conduct a holistic primary survey resulting in industry specific filtration of stressed assets, NPA s and the ones which have the likelihood to transform into one. This exercise was conducted for each of the industry segment namely- Iron Steel & Basic Metals, Automobile, Textile, Paper Product, Rubber, Gems & Jewellery, Food Processing and Other Processing, Other Infrastructure on pan India basis with a focused approach on regional dynamics factoring the regulatory interventions as well. For each industry a rank matrix for both the existing and upcoming assets which fall under either the stressed assets or NPA category is developed on regional basis as well as national level by analyzing the regional leaders.

4 Entire timeline driven approach has been applied to filter out the projects and a clear indicator w.r.t horizon has been demarcated for all industries and each project in the ranking matrix. Further the identified top assets which translate into low hanging fruits for strategic investments where duly studied to have comprehensive diligence report on them facilitating the M&A drive. The recent acquisition of Bhushan Steel s assets by Tata is likely to make a positive impact for resolving the issues of other stressed assets. More than USD 15 Billion of steel assets in the country are still up for auction that shall relieve the bad loan burden of Indian banks and will induce fresh investments. Apart from Tata other industry giants such as JSW Steel, Vedanta Resources and Arcelor Mittal have emerged as key bidders for the debt ridden steel assets in the last few months. If the planned acquisitions turn successful would not only end up strengthening the market capitalization of these companies but shall also be helpful in diversifying the commodity portfolio for some of them. To demystify similar opportunities enincon as a market research firm attempts to dive deep and present the underlying business potential into India s stressed assets.

5 Exhibit 2- Sector Wise Break up of the Loans in the Watch list Turning into NPA s Value in Percentage 3 Value in Percentage Most Opportune Sectors 7 6 6% Power sector witnessed an increase of 37% in the loans turning into NPA s INR Crores) 216 Size of Loans in the Watch list (INR Crore) Steep Rise Slippage in NPA's INR Crores 217 (INR 94 Crores) Shipping sector witnessed an increase of only 1% in the loans turning into NPA s % Steep Fall 7% Low Rise 23% O& G sector witnessed an increase of only 1% in the loans turning into NPA s 7% 5% 6% 4% Same as witnessed in FY 216 Low Fall Iron & Steel Power O&G Mining Infra Roads Real Estate Shipping 4 % 5% Mining sector witnessed a fall of only 1% in the loans turning into NPA s Same as witnessed in FY % Same as witnessed in FY Low Fall Source: Axis Bank, Market Feed, enincon research

6 BUSINESS CASE As on Dec 217, the gross NPA with public banks stands to be INR 7,77,28 crores and that with private sector banks hovers around INR 1,7,796 crores SBI will be the biggest beneficiary of Tata s acquisition of Bhushan steel as its bottom line will go up by INR 13 crores JSW steel looks for stressed assets in India and overseas for its 5 MTPA target Union government is working on SAMADHAN (Scheme of Asset Management and Debt Change Structure) scheme similar to what the SBI-led group of bankers came out with to takeover unsustainable debt of stressed power plants to avoid their liquidation There are plans to rope in National Investment & Infrastructure Fund (NIIF) as an investor to set up an asset reconstruction company that will take over the stressed loans of state run banks The Indian banks have a burden of nearly USD 141 Billion of soured loans as on June 218. The country has set up a panel of experts of explore mechanisms for resolving the burgeoning bad debts plaguing its financial sector Edelweiss is set to raise USD 1.6 Billion to invest in stressed assets in India, with USD 6 Million of it coming from CDPQ REPORT INSIGHTS Complete trend of rising NPA s in India bank wise & industry practice wise examination of NPA incidence Determining parametric indexation of rising NPA cases in India and impact of factors responsible Examining the global scenarios of stressed assets and identification analysis of best practices for India Evaluating the industry wise stressed assets in India Understanding the asset quality and tracking challenges for NPA s in India State wise stacking of stressed assets in India Examining possible impediments for M&A drive/investments and shortlisting good prospects for acquisitions enincon s due diligence study NPA recognition and outlook for automobile sector in India NPA recognition and outlook for iron & steel sector in India NPA recognition and outlook for textile sector in India NPA recognition and outlook for rubber sector in India NPA recognition and outlook for processing (other than food) sector in India NPA recognition and outlook for paper product sector in India NPA recognition and outlook for gems & jewellery sector in India NPA recognition and outlook for other infrastructure sector in India

7 KEY HIGHLIGHTS Business case evaluation for M&A prospects in India Identifying the internal & external factors responsible for rising non performing assets in India Status check and enincon s exclusive due diligence for existing key non performing assets that are favorable for M&A Industry wise detailed profiling of non performing assets & status update for sale Project Database Exclusive list of willful defaulters with key details (Name of Borrowing company, Management Team Details, Lending Agency, Outstanding amount) Evaluating the business case in NPA sale & exit options in automobile industry Recent developments and outlook till 222 to address NPA s enincon s exclusive analysis basis scenarios The impact analysis of RBI s new guidelines on NPA s enincon s exclusive short-medium-long term impact analysis and key recommendations PRESS EXCERPTS State Bank of India is looking to recover close to INR 4, crore of its stressed assets during FY Of the total amount to be recovered, nearly 25% shall come from sources such as sale to asset reconstruction companies or through one-time settlements Business Line Private sector banks in India saw a reduction of INR 46,91 crores in their NPA levels by Dec 217 against what witnessed as on Apr 217. But fresh additions to the NPA list amounted to INR 6,8 crores The Hindu

8 KEY QUERIES ADDRESSED What is the value and volume of non standard, doubtful and loss making assets in Indian infrastructure sector? What is the value and volume of non standard, doubtful and loss making assets in Indian Basic Metal sector? What is the value and volume of non standard, doubtful and loss making assets in Indian processing sector? What is the value and volume of non standard, doubtful and loss making assets in Indian automobile sector? What is the value and volume of non standard, doubtful and loss making assets in Indian gems & jewellery sector? What is the value and volume of non standard, doubtful and loss making assets in Indian textile sector? What is the value and volume of non standard, doubtful and loss making assets in Indian rubber sector? What is the region wise & bank wise split of wilful defaulters for NPA s? What are the challenges in assessing the quality of assets in India? What have been the trends in the percentage share of NPA s of total loans awarded in India? What is the possible business case for M&A with rising case of NPA s in India? What shall be the size & scale of market opportunity for banks, financial institutions, M Cap companies, international investment agencies etc.? What would be the likely opportunity in value terms for asset acquisition and asset recovery? MUST BUY FOR Public Sector Banks Private Sector Banks International Banks Financial Institutions Asset Reconstruction Companies Investment Bankers Credit Rating Companies Project Developers Audit Firms Portfolio Management Firms Strategic Advisory Companies Management Advisory Companies Independent Consultants Financial Research Companies Market Research Companies

9 Keep in touch with us Our Focus, Your Future Address 4 th Floor, World Mark 2, Aerocity, IGI Airport, New Delhi 1137, India Contact Information connect@enincon.com Sales: sales@enincon.com Support: support@enincon.com Telephone Office Phone: Sales: Support: