Tata Group and the private equity investor Actis are coming together to form a joint venture that is intending to spend $2bn on Indian highways over the next five years. The government’s relaxed norms for both Indian and overseas investors is attracting many players.

Tata Group has set up Tata Realty & Infrastructure to take care of the group’s activities in the sector. While 65% of the joint venture will be owned by Tata, the rest will be controlled by Actis. The joint venture will be known as TRIL Roads Pvt Ltd.

Actis will invest $77.5mn in the joint venture to buy stake. Actis partner Michael Till said that the equity investor is planning to invest at least 30% of the $750mn infrastructure fund it is currently managing, over the next three years.

Tata Realty MD & CEO Sanjay Ubale said that the company will invest $122.5mn in the JV from internal accruals. Atlantia, the Italian toll operator and technical partner of Tata Realty will invest $200mn for its stake in the special purpose vehicles to be manufactured especially for the projects.

The $400mn investment by the three companies in the JV will help them garner $300mn more from the government as viability gap funding. Viability gap funding is given by the government to narrow the gap between infrastructure cost and the money available with the investor. The rest of $1.3bn for the JV will be borrowed from financial institutions.

TRIL Roads Pvt Ltd is planning to build at least five highway projects, all of them above 500km in length.

In its race to become the world’s fastest growing economy, the country finds itself lagging behind in infrastructure. To overcome this shortfall, Indian government has signed 44 contracts to build 3,843kms of road with an investment of Rs. 40,600cr in the last two years. It is planning to award 86 more projects in the current fiscal.

Due to the upward movement of government bonds and resultant pressure on interest rates, ‘crowding out’ of private sector credit is a potential possibility, according to RBI Governor D Subbarao. He was speaking at Peterson Institute for International Economics, Washington DC.

“Surely, yields on government securities had firmed up, but only modestly. Even as fiscal deficit this year, as a percentage of GDP, is lower, the absolute amount of government borrowing in gross terms is roughly of the same order as in last year,” Mr. Subbarao said.

The RBI Governor said that Indian economy should move towards liberalization of capital account gradually and the path should be revisited periodically to effect changes to suit global and domestic economic conditions and to avoid the mistakes that led to the crisis. “Our position is that capital account convertibility is not a standalone objective but a means for higher and stable growth,” he said.

Mr. Subbarao continued, “We prefer long-term flows to short-term flows and non-debt flows to debt flows. The logic for that is self-evident. Our policy on equity flows has been quite liberal, and in sharp contrast to other emerging economies, which liberalized and then reversed the liberalization when flows became volatile, our policy has been quite stable.”

“Historically, we have used policy levers on the debt side of the flows to manage volatility. This has been our anchor when we had to deal with flows largely in excess of the economy’s absorption capacity in the years before the crisis. This has been our policy when we saw large outflows during the crisis. And I believe this will continue to be our policy,” he added.

Maruti Suzuki, India’s biggest car manufacturer has registered a whopping 170% increase in y-on-y net profit for the fourth quarter, riding atop record car sales during FY10. However, the quarterly results fell short of market expectations.

The sales figures for Q4 went up to Rs. 656.55cr from Rs. 243.13cr on year-on-year. The total income also witnessed a jump of 30.96% from last year Q4’s Rs. 6,432.90cr to Rs. 8,424.55cr. The company decided to pass on the bonanza to its shareholders by declaring a dividend of 120% per share of face value Rs.5. Last year’s dividend was 70% per share.

However, rising input costs, tough emission norms, fluctuating exchange rates and increasing interest rates may dampen the good show. The recent 2% excise duty hike has seriously dented Maruti’s profits. The 2% hike has led to a 5.6% increase in the excise bill for each vehicle sold by the company. But, the company is unable to increase the price of its cars due to heavy competition in the small and compact car segment from existing and new entrants, mostly global giants.

To survive the competition, the company is forced to resort to aggressive advertising and competitive pricing, both cutting heavily into profit margins. Though the company is forced to spend 5.6% extra due to the excise duty hike, the cost of a car was increased by only 1.2%. This has obviously resulted in the quarterly results being below market expectations.

“Though our net sales increased, our profit was somewhat impacted by higher raw material costs, new model launches and depreciation of euro and yen.” confirmed MD & CEO of Maruti Suzuki India Shinzo Nakanishi. “The market continues to look good and we are optimistic.”

As European withdraw the incentives given to car buyers, the growth of export in automobile industry of India may lack the punch in the year 2010-2011, that it showed last year. Also, since Indian car makers want to maintain the demand in domestic markets, the production facilities are already in stretch and are struggling to meet domestic demand.

According to SIAM (Society of Indian Automobile Manufacturers), there was a 32.9% rise in the export of passenger vehicles in 2009-10 and 4,46,146 units of such vehicles were exported. The combined export of Maruti and Hyundai was 4,33,233 units.

Auto analyst, Abdul Majeed, said, “India has been looked at as a hub for small cars but with huge demand in the domestic market itself, leading car manufacturers are finding it tough to export a significant part out of the country, as they do not want to lose their market share here. This is expected to result in nearly flat exports this year. While Hyundai has already announced its plans for shifting the production of i20 for overseas markets to Turkey, Maruti Suzuki may do similar things later for the A-Star, as competition gets severe in the small car space in India.”
Last year, Maruti Suzuki India had dominated passenger car segment in the country and held more than 50% of market share. Hyundai Motors held 20.6 per cent of market share.

Executive officer (sales and marketing), Maruti Suzuki India, Mayank Pareek said, “The withdrawal of scrappage incentives by most European countries will affect the growth of export in the current financial year. In fact, the overall export market will be tough and it would be a challenge to retain last year’s export numbers, though we are continuously developing alternate markets that will give us a hedge against any slowdown in demand from Europe.”
senior vice-president of Hyundai said, “We expect exports to be flat vis-à-vis last year, as the company is stretching capacity to 6,40,000 a year to cater to the domestic market, which is poised to grow by 12-15 per cent this year.”