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B&E This Fortnight
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Issue Date - 30/04/2012
Fix it, even if it isn’t...

India’s largest retailer, which also holds the dubious distinction of being under a debt load of Rs.78 billion, is trying to cut as many as 18 deals for fund raising and disinvestment in order to bring its mammoth debt to manageable levels. The deals include inducting a strategic partner for its flagship Big Bazaar & Food Bazaar stores and for the furniture chain Hometown. Besides, it plans to merge eZone with a services firm.

The top management is looking to streamline operations by strengthening logistics, and increasing focus on food & fashion – segments that witnessed an average revenue growth of 24% and 26% respectively over the last 5 years. If these deals are actualized, the company can expect to become debt free. The best part of this would be a more focussed Future Group as opposed to a needlessly diversified one.

Finally, a new dawn in sight

If M&As are anything to go by, the Indian IT industry seems to be regaining lost confidence. An optimal reflection of the same is Tech Mahindra’s announcement to go ahead with its plan to fully acquire its subsidiary Mahindra Satyam (in which it holds a 43% stake). The boards of both companies have agreed to a swap ratio of 2:17, i.e. for every 17 shares of Mahindra Satyam, 2 shares of Tech Mahindra will be given, which will eventually make the cost of acquisition for Tech Mahindra $1 billion.

The deal will make the joint entity India’s fifth largest software exporter by revenues; generating over $2.4 billion for the last financial year. Post the completion of the deal, a major change in the top management is expected at Tech Mahindra, though CEO C. P. Gurnani is expected to continue in his current role.

Commenting on the development, Bhavesh Chauhan, analyst, Angel Broking said, “The swap ratio was expected. What will be more interesting to see is how the company competes with the bigger players in the league”. The merger will allow the newly formed entity to explore new verticals in IT services while it has been witnessing shrinking revenues from its largest vertical, telecom, for some time now. In particular, it has to improve its revenue share from BFSI, which was just 21% for Q3. Else, with banking on a revival mode, Mahindra Satyam may miss valuable growth opportunities just like Wipro did.


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