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Bharti Infratel board meet to decide on Indus Towers merger

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Bharti Infratel will discuss the next step to be taken in the board meeting on December 24 on if an extension is to be sought for the Infratel merger with Indus Towers announced in April last year, sources said.

The deal has already missed October 24 deadline for want of approvals and the current deadline expires on Tuesday. The deal needs clearance from the Department of Telecom which needs nod from Finance Ministry in view of an international arbitration of an old case when Vodafone bought Hutchison stake in Indian telecom arm in an 11 billion dollar deal.

India slapped a 3 billion dollar withholding tax on Vodafone which went to international arbitration. Withholding is a tax deducted at source, especially one levied by some countries on interest or dividends paid to a person resident outside that country. The case is pending.

In October the Infratel board had already given a two-month extension to secure the government’s approval which expires tomorrow. “Board will decide tomorrow whats to be done. If the Board feels more time is needed (to secure government approval) then it may be extended further or anything can be an option,” the sources said.

Anything could mean a termination of the deal but the source did not say it. Cash-strapped Vodafone Idea, currently holding 11.15 per cent in Indus Towers, was banking on an exit at the time of merger to raise over Rs 5,500 crore to fund its future network expansion needs.

The merger, proposed well over a year ago to create a company with over 1,63,000 towers, had received a clearance from the Chandigarh bench of the National Company Law Tribunal (NCLT) in early June, and had been awaiting a nod from the Department of Telecommunications (DoT) for enhancement of foreign direct investment limit.

As per the merger terms, Bharti Airtel and Vodafone Plc – which currently own 42 per cent each in Indus Towers – were expected to hold 37.2 per cent and 29.4 per cent, respectively, in the merged entity. KKR and the Canada Pension Plan Investment Board were expected to own a combined 6 per cent stemming from their stake of over 10 per cent in Bharti Infratel.

The crucial merger, which is expected to help loss-making telecom companies Bharti Airtel and Vodafone Idea sell stake to raise funds to meet their several funds needs still awaits government approval. Airtel and Vodafone are to pay government about Rs 1.30 lakh crore as AGR dues within the next one month.

Both have filed for review petition in the Supreme Court. A special committee by Bharti Infratel, set up in October, had extended the long stop date to December 24. As the merger is contingent upon receipt of regulatory approvals and fulfilment of other conditions, there can be no assurance that the process can be completed within the extended time-frame, Bharti Infratel had informed the BSE on October 24.

This merger will help Bharti Airtel and Vodafone Group Plc, promoters of Indus Towers, to sell their stake, bring down debt and invest in wireless operations in India. Earlier this month, Reliance Industries Ltd wholly owned subsidiary, Reliance Industrial Investments and Holdings Ltd, entered into binding agreements with Brookfield Infrastructure Partners LP and its institutional partners for an investment of Rs 25,215 crore in the units to be issued by Tower Infrastructure Trust, its tower arm.

This agreement makes Jio the anchor tenant of the tower portfolio under a 30-year master services agreement. RIL is also talking to potential investors to divest stake in its fibre assets. Raising funds by divesting non-core assets has become crucial for telecom companies .

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Cyclicals to drive Q3FY22 earnings growth: MOFSLA

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Corporate earnings growth for the third quarter of FY22 is expected to be led by cyclical stocks, Motilal Oswal Financial Services (MOSFL) said in a report.

Earnings growth is anticipated to be driven by metals, oil and gas and BFSI (Banking, Financial Services and Insurance) sectors.

In its report, MOSFL said that economic recovery backed by festive demand, higher commodity prices and improvement in asset quality in financials are expected to back this trend.

“There remains a clear divergence in 3QFY22 earnings growth. Global cyclicals, such as oil and gas and metals, continue to drive aggregate earnings growth, while BFSI profits are led by improvements in asset quality and credit growth,” the report said.

“Technology is likely to continue its momentum, propelled by strong revenue growth,” it added.

The auto and cement sectors are anticipated to drag earnings down, led by poor demand and higher commodity prices.

“Consumer, healthcare, capital goods, consumer durables and specialty chemicals are predicted to report single-digit YoY profit growth. Input cost pressures continue to weigh on gross margins for cement, specialty chemicals, autos, consumer staples and durables sectors,” the report said.

The report pointed out that Asian Paints, Bharti Airtel, BPCL, IOC, Tata Steel, JSW Steel, Titan, Hindalco and ONGC have seen an upgrade in their FY22 earnings.

“Companies that have seen downgrades to their FY22E earnings are Tata Motors, Maruti Suzuki, Ultratech Cement, Hero Motors, Shree Cement, Coal India, Axis Bank and HUL,” it said.

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HDFC Bank’s Q3FY22 YoY net profit up 18.1%

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 Lending major HDFC Bank on Saturday reported a year-on-year rise in net profit of 18.1 per cent for the third quarter of FY22.

The bank’s net profit increased to Rs 10,342.2 crore during the period under review over the quarter ended December 31, 2020.

Besides, the bank’s net interest income (income earned less interest expended) for the quarter under review grew by 13 per cent to Rs 18,443.5 crore from Rs 16,317.6 crore for the quarter ended December 31, 2020.

The lender’s net revenues (net interest income plus other income) increased by 12.1 per cent to Rs 26,627 crore from Rs 23,760.8 crore for the quarter ended December 31, 2020.

“Advances grew at 16.5 per cent, reaching new heights driven by relationship management, digital offering and breadth of products. Core net interest margin was at 4.1 per cent. New liability relationships added during the quarter remained at an all-time high,” HDFC Bank said in a statement.

“This continued focus on deposits helped in the maintenance of a healthy liquidity coverage ratio at 123 per cent, well above the regulatory requirement, which positions the bank favourably to capitalise on growth opportunities,” it added.

As per Q3FY22 results, provisions and contingencies for the quarter rose Rs 2,994 crore (consisting of specific loan loss provisions of Rs 1,820.6 crore and general and other provisions of Rs 1,173.4 crore) as against total provisions of Rs 3,414.1 crore for the quarter ended December 31, 2020.

“Total provisions for the current quarter included contingent provisions of approximately Rs 900 crore,” it said.

“The total credit cost ratio was at 0.94 per cent, as compared to 1.30 per cent for the quarter ending September 30, 2021 and 1.25 per cent for the quarter ending December 31, 2020,” it added.

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Lenders expected to exhibit strong Q3FY22 results

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 Listed lenders in India’s equity markets are expected to report ‘optically’ strong earnings growth for Q3FY22, said HDFC Securities in a report.

Accordingly, the brokerage house expects its coverage universe of 23 lenders to report 51 per cent YoY growth during the period under review.

This trend, the report said will come largely on the back of expected normalisation of provisions.

“The pace of collections and recoveries continues to improve, which, concurrent with normalised economic activity, is likely to moderate the stressed pool,” the report said.

“Disbursements are likely to witness healthy growth, driven by seasonal pick-up in retail loans as large corporate Capex remains elusive.”

As per the report, the revival in business momentum is likely to drive a 10.4 per cent YoY loan growth for the brokerage house’s coverage universe, with large private banks and large NBFCs (BAF) continuing to clock market share gains.

“The third wave of the pandemic is unlikely to impact Q3 earnings except in underlying sectors like travel and tourism that are already under stress.”

“However, we expect most lenders to maintain a surplus provisioning buffer for potential asset quality issues. We tweak our FY22E-FY24E forecasts for select lenders to factor in lower credit growth and marginally higher credit costs.”

Besides, HDFC Securities continue to prefer large banks with strong balance sheets and formidable deposit franchises.

Furthermore, it cited that business momentum continues to gather pace.

“In a quarter relatively unaffected by the pandemic and near-normal resumption of economic activity, we expect to see strong sequential growth in disbursements, particularly in retail and SME segments, riding on seasonal and pent- up demand.”

“Provisional filings suggest that banks within our coverage universe continue to gain market share as reflected in loan growth at 12 per cent YoY compared to system-wide YoY credit growth at 7 per cent.”

At present, the brokerage house has 23 lenders in its coverage universe including ICICI Bank, SBI, Bajaj Finance, SBI Cards, and Axis Bank.

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