There’s a stark difference between GMR Infrastructure Ltd’s first experience with India’s primary markets in August 2006 and its recent qualified institutional placement (QIP) worth $1 billion (Rs3,940 crore).
Its initial public offering last year was far from a success, with the issue being sold at the lower end of the price band and its shares trading close to the issue price for over a month. Back then, the company was valued at less than Rs7,000 crore.
GMR did much better this time around—its QIP issue is the largest in the Indian markets so far, and at a reasonably high valuation. It offered institutional investors a 9.08% stake in the company at Rs240 per share, which values the company at nearly Rs44,000 crore.
A large chunk of the increase in the company’s value happened just before the QIP issuance. In fact, GMR’s share price on the National Stock Exchange peaked at Rs263 on 5 December, the day the draft offer document was filed.
Less than two months ago, on 19 October, the stock had corrected sharply and traded at Rs147 after its September quarter results disappointed the Street. Leading brokerages such as Kotak Securities Ltd and Motilal Oswal Securities Ltd had released ‘underweight’ and ‘neutral’ calls on the stock after the September quarter results. According to Bloomberg data, the average target price of seven brokerages stood at Rs133 per share at that time.
It’s interesting that in less than two months’ time GMR Infrastructure managed to bring in 49 leading institutional investors and sell shares worth nearly Rs4,000 crore at Rs240 per share. What’s certainly helped the firm’s valuations are news reports which talk of plans to invest Rs60,000 crore to enhance its power generation capacity and acquire coal assets abroad. In addition, the company has stated its plans to bid for more airports outside India.
Some analysts say the confidence displayed by institutional investors could be because of increased clarity on the revenue sharing agreement with Airports Authority of India regarding Delhi Airport, apart from details on the Istanbul airport project. While it’s still not clear if GMR’s innovative revenue recognition model will be accepted by the government (some news reports this month have suggested otherwise), the company’s valuation of Rs44,000 crore seems to take this as a given.
From GMR’s point of view, the timing of the issue couldn’t be better, considering that the issue price is close to its all-time closing high. For its shareholders, the fund infusion may ensure that GMR continues to be a lucrative investment.
A recent paper by Deutsche Bank Research’s Thomas Meyer tries to explain India’s pre-eminence in information technology (IT) services exports. Meyer points out that, at 16% of total exports, the proportion of IT exports to total exports is one of the highest in the world. Countries such as Israel and Ireland that have similar ratios are small countries with a large proportion of skilled personnel. In fact, it is the rich countries that should have a higher share of high-skilled exports. The Indian experience, finds Meyer, is unique. Is it because so many of us can speak English? Meyer says that the offshoring model is one reason for the high proportion of India’s IT services exports. He finds that India’s share of other high-technology exports (other than IT) is much lower than that of other countries. For example, India’s share of high-tech exports as a percentage of total exports is 2.8%, compared with 19% for China. “High-technology manufacturing products may draw on a similar set of resources as IT and IT-based business services, in particular a skilled workforce at affordable wages,” says Meyer. “Hence, a lower share of high-technology exports may just be the consequence of a higher share of IT services exports because domestic resources may have been allocated towards the latter. Combining both exports thus gives a more complete picture: India loses its exceptional position but it is still a strong contender with regard to sophisticated services and products.”
After explaining why India’s IT exports are so high, Meyer points out that in the long run it’s the level of development that leads to a comparative advantage in the export of skill-intensive products.
And while offshoring may help to export more tech products and services at a relatively low stage of development, that advantage is lost as the country develops and wages increase. “You can’t get rich by staying poor,” he says.
According to his computations, India’s specialization in skill-intensive exports may reach a peak between 2007-2010 and decline afterwards. It may take until 2063 for specialization to rise again and until the end of this century for the current level to be reached again.
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