Rupee appreciation gives India Inc an advantage for inorganic growth, M&A worldwide

Over 10 per cent appreciation in the domestic currency against dollar has thrown a new M&A opportunity for India Inc which wants to reach out to the world by acquiring going concerns on a global scale, an ASSOCHAM Eco Pulse (AEP) Study has shown.

An ASSOCHAM Study of 70 deals done overseas in the first six months of the current fiscal, in which Indian firms undertook buyouts worth $14 billion, has revealed that Indian companies would have saved Rs. 6500 crore ($1.66 billion) just because of increase in Rupee value.

While home grown IT companies are struggling to cope with the Rupee pressure, the currency appreciation has given an advantage in terms of prospects for inorganic growth worldwide, the AEP stated.

The IT sector which dominated the overseas M&A activity of the domestic firms in the second quarter with deal valuation worth $1.56 billion, its total savings have been to the tune of Rs. 795 crore in first half of the current year.

Due to a continuous decline in dollar value, the US had remained the most favorite hunting ground for the Indian companies in both first as well as second quarter. Even as the overall overseas buyouts of India Inc declined by 64 per cent in Q2, the deal valuations announced with US based companies remained the same at $2.9 billion for both quarters.

On the other hand, Europe where the currency depreciation of Euro against Rupee was around 4 per cent since March this year, the buyout activity of the Indian companies witnessed a severe decline of 88 per cent in Q2 as compared to Q1. The valuation declined from $2.89 billion in the first quarter to $326 million in Q2.

The inorganic expansion activity cooled down at the domestic front also. Absence of the blue chips from the M&A market led to a decline of 40 per cent in the valuations even as the number of deals struck remained almost same in both the quarters. Lack of corporate enthusiasm for the buy-outs may turn out to be an adverse signal for economic growth of India, the AEP stated.

As compared to $2.63 billion worth deals cracked in the domestic M&A market in first three months, the amount squeezed to $1.55 billion in following three months of Q2 of FY2007-08.

On the contrary, the foreign firms remained upbeat on India growth story, as they splurged their acquisition valuations by 25 per cent from $153 million in first quarter to $193 million in the second quarter.

The total deal values across Indian and foreign companies have registered a decline of 58 per cent from $13 billion in first quarter of current fiscal to $5.4 billion in second quarter.

In terms of sector analysis, while ‘Steel’ ruled the roost owing to Tata-Corus deal in the first quarter, IT and ITes dominated the M&As for Q2 valued at $1.56 billion. While the steel sector had M&A valuation of $5.4 billion between April and June, it dropped to a mere $940 million between July and September.

The biggest acquisition announcement was made by JSW Steel to take over Jindal United Steel Corporation, Saw Pipes and Jindal Enterprises LLC based in US for $940 million. India Hotel Company was the second biggest acquirer with the deal value worth $850 million. The other major acquirers in the second quarter were Wipro Technologies ($ 600 million), Firstsource Solutions ($330 million) and Reliance Communication ($300 million).

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