BQuick On July 19: Top 10 Stories In Under 10 Minutes

Here is a roundup of the day’s top stories in brief.

1. A Mixed Bag For Reliance Industries And Jio

Reliance Industries Ltd.’s quarterly profit rose meeting estimates even as a lower refining margin and sluggish petrochemical business continued to weigh on its earnings.

• Net profit grew 5.6 percent over the previous quarter to Rs 9,036 crore.
• Revenue for three months ended June rose 5.6 percent sequentially to Rs 88,263 crore.
• Operating profit fell for the fourth straight quarter, dipping 0.5 percent to Rs 13,640 crore.

Gross refining margin fell due to lower crack spreads.

Reliance Jio Infocomm Ltd. reported a surprise profit growth in the April-June quarter even after starting to pay fees for its towers and fibre and a fall in average revenue per user.

• Profit in the three-month period grew 6 percent sequentially to Rs 891 crore.
• Revenue rose 5.16 percent to Rs 11,679 crore.
• Operating profit rose 7.9 percent to Rs 4,670 crore.
• Average revenue per user fell to Rs 122 per month from Rs 126 in the previous quarter.

Strong subscriber additions aided revenue growth.

2. Brookfield Inks Tower Deal With Reliance

Brookfield Asset Management Inc., along with other investors, agreed to invest Rs 25,215 crore in Reliance Industries Ltd.’s Tower Infrastructure Trust.

• Proceeds from the investment by Brookfield and other unnamed investors will be used to repay certain existing financial liabilities of tower business.
• The rest will be used to acquire Reliance Industries’ 49 percent stake in Reliance Jio lnfratel Pvt Ltd., the operating company of Reliance Jio Infocomm Ltd.’s tower assets.
• The trust currently owns 51 percent of Reliance Jio Infratel.

Reliance Industries may get Rs 12,000 crore from the transaction.

3 IndiGo’s Best-Ever Quarter

InterGlobe Aviation Ltd., whose promoters are publicly bickering over governance issues, reported its highest quarterly profit since listing as yields spiked.

• Profit surged more than 4,000 percent year-on-year to Rs 1,209 crore.
• Revenue rose 44.6 percent to Rs 9,420 crore.
• Operating profit jumped more than threefold to Rs 2,656 crore.
• Yields rose to Rs 4.08 per kilometer from Rs 3.62 a year ago—the highest jump since listing.

Higher yields, lower oil prices and more passengers flying IndiGo also helped the airline.

The board of InterGlobe Aviation on Friday discussed a “range of issues”, including appointment of a woman director, and the meeting will continue on Saturday, the company’s Chief Executive Officer Ronojoy Dutta said.

4. Don’t Expect A Private Capex Revival Soon

Rate cuts, dovish global central banks and falling benchmark yields have brought down cost of capital, triggering hopes about private investments picking up in India. The head of the nation’s largest portfolio management firm doesn’t share this optimism.

• Prateek Agrawal, chief investment officer at ASK Investment Managers, said there’s still time for the private capex cycle to come back. And he cited three reasons for his less sanguine view.
• One, the insolvency resolution process at India’s bankruptcy courts has slowed because of big companies, Agrawal, whose firm manages Rs 18,000 crore in assets, said in the latest episode of ‘Alpha Moguls’, BloombergQuint’s special series.
• That’s because companies buying stressed assets are themselves looking at deleveraging—Reliance Industries Ltd. and the Tata Group being the cases in point.

According to Agrawal, is that no private entity is looking to build in India.

5. Friday Sell-Off Wipes Out Weekly Gains

Indian equity benchmarks closed at a two-month low, led by declines in HDFC Twins and carmakers.

• The S&P BSE Sensex fell 1.44 percent to 38,337.
• The NSE Nifty 50 declined nearly 1.53 percent to close at 11,419.25.
• The broader market index represented by the NSE Nifty 500 Index fell as much as 1.60 percent.
• Markets witnessing a sharp correction is long overdue and not due of any specific alarming reason, according to Saurabh Mukherjea of Marcellus Investment Managers.
• All sectoral gauges compiled by NSE fell.

Follow the day’s trading action here.

U.S. stocks climbed as investors assessed corporate earnings and fresh clues on monetary policy. Treasuries fell and the dollar rose.

• The S&P 500 Index rose 0.2 percent to 3,000.28 as of 9:58 a.m. New York time.
• The Stoxx Europe 600 Index climbed 0.2 percent.
• The MSCI Asia Pacific Index surged 1.3 percent.

Get your fix of global markets action here.

6. How To Influence Ratings, IL&FS Style

The collapse of Infrastructure Leasing & Financial Services Ltd. in September 2018, which roiled the Indian credit markets, left behind many questions on how an entire system missed the weakness in India’s largest infrastructure conglomerate. Specifically, questions were raised on why credit rating agencies failed to flag-off the build up of risk to investors.

• The government-appointed board of IL&FS had brought in Grant Thornton to undertake a forensic audit on the role of credit rating agencies.
• The agency has submitted its findings in an interim report to IL&FS, the board said in a statement on Thursday. “The report has been shared with relevant stakeholders, sector experts, and legal teams for information, consultation and opinion.”
• BloombergQuint has reviewed a copy of the interim report, which speaks of the manner in which senior officials of IL&FS manipulated credit rating agencies and their officials. This allowed IL&FS and its group companies to retain their high ratings and hide a build up of stress.

Homes, football tickets and pressure tactics—just a few ways how ratings were managed.

7. Blow For Biocon

Shares of Biocon Ltd. dropped the most in nearly a year as Amgen Inc and Allergan Plc launched the first biosimilars of breast-cancer drug trastuzumab in the U.S., denying the Indian company exclusivity benefit.

• Trastuzumab has a market size of $3 billion in the U.S., according to a note by Edelweiss Securities.
• Bloomberg reported that Kanjinti, a biosimilar for Roche’s Herceptin (trastuzumab), is now available in the U.S. after Amgen and Allergan won approval from the Food and Drug Administration.
• The understanding was that Biocon would be the first to commercialise trastuzumab and enjoy six to nine months of exclusive sales.

With the launch by rivals, this assumption gets nullified.

8. Arvind Subramanian’s Second Defence

In a paper on India’s economic growth in June 2019, former Chief Economic Adviser Arvind Subramanian claimed that India’s annual average GDP growth may have been about 4.5 percent between 2011 and 2016, instead of the 7 percent estimated by the Central Statistics Office.

• The paper was critiqued by several prominent economists, including the Prime Minister’s Economic Advisory Council.
• On Thursday, Subramanian published another paper defending the methods he used to estimate whether India’s GDP estimates are accurate.
• Subramanian wrote his analysis attempted a validation of the numbers through other macroeconomic indicators since the underlying data that CSO uses isn’t available publicly.

Here are his detailed counter-arguments.

9. $2 Billion To Triple Oyo Stake

Oyo Hotels and Homes founder Ritesh Agarwal will invest $2 billion to triple his stake in the SoftBank-backed Indian lodgings startup he established in his teens.

• Agarwal will buy shares from existing investors Lightspeed Venture Partners and Sequoia India, which will remain backers of the startup, the company said in a statement.
• The deal will value Oyo at about $10 billion and raise Agarwal’s slice of the company to 30 percent from about 10 percent now, people familiar with the matter said, asking not to be identified discussing a private transaction.
• The entrepreneur won support from banks and other financial partners for his deal, Oyo said.

Oyo grew revenue more than four times in June from a year earlier.

10. Karnataka Assembly Stuck In Limbo

The Karnataka Assembly was adjourned till July 22, yet another delay for the trust vote of the Congress-JD(S) government which has been pending for two days now. The vote is now expected to happen Monday.

• Governor Vajubhai Vala had set a deadline of 1:30 p.m. today for Chief Minister HD Kumaraswamy to prove his majority.
• However, that deadline was missed and Congress leader Siddaramaiah said that 20 members were yet to participate.
• Kumaraswamy also moved the Supreme Court challenging the Governor's letter which had set the deadline.
• BJP's BS Yeddyurappa had said that their party members will sit peacefully till the vote happens, provided it happens today no matter how long it took.

Follow the events of the Karnataka assembly here.