India’s Growth De-Rated as Rupee Constrains Subbarao: Economy

By Tushar Dhara and Kartik Goyal - May 24, 2012

India’s central bank chief pledged to take steps as needed to curb swings in the rupee as the currency’s slump threatens to stoke inflation and limit scope for interest-rate cuts.
“We will do whatever is necessary, consistent with our policy,” Governor Duvvuri Subbarao said late yesterday in Mussoorie, in north India. “We have taken action to improve the current flows, encourage inflows and also to curb speculation.”
The rupee’s 19 percent slump against the dollar in the past year, driven in part by the failure of Prime Minister Manmohan Singh to liberalize investment rules, adds pressures to an inflation rate already the highest among BRIC nations. The Reserve Bank of India will probably be unable to lower borrowing costs until October-to-December, Goldman Sachs Group Inc. said today as it downgraded its growth forecast for the country.
“The RBI has limited room to prop up the rupee,” said Arun Singh, a Mumbai-based senior economist at Dun & Bradstreet Information Services India Pvt. “The ball is in the government’s court. They need to act at a swift pace and give a positive signal to foreign investors about commitment to pending economic reforms. That will reverse the tide.”
India’s currency reached a record low of 56.3875 per dollar yesterday, before recouping some losses to close at 55.655. Its tumble in the past 12 months is the worst in a basket of 11 major Asian currencies tracked by Bloomberg. The BSE India Sensitive Index ended 1.7 percent higher. The yield on the 8.79 percent bonds due November 2021 fell one basis point, or 0.01 percentage point, to 8.5 percent.

Conserve the Reserves

With Greece’s election still weeks away and the risks of an escalation in Europe’s woes difficult to assess, the RBI may be wary in drawing down India’s reserves to support the rupee. The nation had $258 billion of foreign-exchange holdings as of May 11, down about $26 billion from the end of October, according to data compiled by Bloomberg.
“Intervention is increasingly becoming counter-productive as it is only breeding questions about adequacy of foreign- exchange reserves,” Indranil Sen Gupta, an economist at Bank of America Merrill Lynch in Mumbai, wrote in a note to clients yesterday.
As one response, India may issue a foreign-currency denominated bond of about $20 billion, Sen Gupta said. Barclays Plc analysts today also predicted a possible sale of dollar- denominated securities for non-resident Indian investors, perhaps through the State Bank of India.

No Dollar Bond

Even so, Subbarao said India isn’t contemplating selling sovereign bonds abroad. The Reserve Bank is continuously monitoring the exchange rate, he told reporters after attending a board meeting of the central bank.
Elsewhere in Asia, Japan today reported that core consumer prices, which exclude fresh food, rose 0.2 percent in April from a year earlier, showing the Bank of Japan remains distant from its 1 percent inflation target after years of falling prices. Singapore may announce that industrial output grew 4.1 percent in April from a year before, according to the median estimate in a Bloomberg News survey of economists.
In Europe, German consumer confidence for June as measured by the GfK survey is forecast to be unchanged at 5.6, according to the median estimate. French consumer confidence in May is also forecast to remain the same, a separate survey showed. Italy may say retail sales fell in March from the previous month.
In the U.S., a report due later today may show the Thomson Reuters/University of Michigan consumer confidence gauge was unchanged in May from a preliminary reading of 77.8, the highest level since January 2008, economists said.

Inflation Challenge

Goldman revised its forecast for India’s wholesale inflation gauge to a 6.5 percent gain for the fiscal year that began April 1, from 5 percent previously, citing higher food and fuel costs. Tushar Poddar, a Goldman economist in Mumbai, wrote in a note to clients that the RBI will now likely lower interest rates by half a percentage point in the final three months of 2012, compared with the 75 basis points previously seen.
India’s gross domestic product will increase 6.6 percent this fiscal year, down from 7.2 percent previously predicted, according to Goldman. Rohini Malkani, an economist at Citigroup Inc. in Mumbai, said in a note yesterday “there is now near- consensus that the India story has de-rated, with growth at best likely in the 6.5 percent to 7 percent range” this year.
India reports first-quarter GDP figures next week, forecast to show a year-on-year increase of 6 percent, according to the median estimate in a Bloomberg News survey.

Return to Risk

The rupee has also been hurt by a record trade deficit and reduced demand for emerging-market assets as Europe’s debt crisis dims the global outlook. Goldman predicts a rebound in coming months as risk appetite returns.
The currency’s slide may increase the cost of imports such as oil and stoke inflation, a risk underscored by Indian refiners’ decision to boost petrol prices yesterday.
India’s central bank this month stepped up the fight to steady the rupee. It curbed trading in currency derivatives to rein in volatility and moved to boost the supply of dollars by cutting the amount of overseas income companies can hold in foreign currency to 50 percent from 100 percent.
Officials have also raised interest rates on non-rupee deposits by as much as 300 basis points and freed up borrowing costs on foreign-exchange loans to exporters.

Gasoline Prices

State-run refiners including Indian Oil Corp. increased gasoline prices by 11 percent to 73.18 rupees ($1.31) a liter in New Delhi yesterday. Diesel, kerosene and cooking gas prices were left unchanged.
Subbarao said the central bank won’t rule out the possibility of selling dollars directly to oil refiners. India imports about 80 percent of its crude oil needs.
In March this year, he said the Reserve Bank of India only intervenes in the foreign-exchange market to curb swings in the rupee and prevent disruption to macroeconomic stability.
The governor yesterday reiterated the central bank’s stance that it will consider inflation and economic growth data before deciding on interest rates at the June 18 policy meeting.
The central bank lowered borrowing costs last month for the first time since 2009, by 50 basis points to 8 percent, to bolster spending at home. It also flagged price pressures from the fiscal deficit, energy costs and the weaker rupee.
Indian inflation quickened to 7.23 percent in April. That’s the fastest pace among the so-called BRIC group of biggest emerging markets that also includes Brazil, Russia and China.
While the headline gauge “surprised on the upside” last month, core inflation remains below 5 percent, Subbarao said.
Asia’s third-largest economy probably expanded 6.7 percent in the year through March 2012, less than the 8.4 percent pace recorded in each of the previous two fiscal years, according to the median estimate in a Bloomberg News survey.
Faltering efforts to liberalize the economy, uncertainty over tax changes and the highest BRIC fiscal deficit have damaged sentiment, deterring investment from abroad. Standard & Poor’s cut India’s credit outlook to negative from stable last month, putting at risk its investment grade status.
To contact the reporters on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net; Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Balrampur Says Mills Losing Money on Controls: Corporate India

Balrampur Chini Mills Ltd. (BRCM), India’s best-performing sugar producer, says the industry will continue to lose money as state controls increase costs and a slump in global prices cuts margins on exports.

Prospects of falling profits have turned analysts the most bearish in at least nine months on Balrampur and Bajaj Hindusthan Ltd. (BJH), the country’s biggest maker of the sweetener, according to data compiled by Bloomberg. The federal government sets quarterly limits on sales by each mill to cap prices, while state administrations fix cane rates to help about 50 million farmers, a powerful voting bloc, earn more.

“Companies are making losses because of government regulation,” Vivek Saraogi, Balrampur’s managing director, said in an interview. “Until policy is reformed, companies will continue making losses.”

Balrampur, which reported losses in three quarters through December, may say profit in the three months ended March 31 plunged 75 percent from a year earlier to 283 million rupees ($5.1 million), according to the median estimate of three analysts compiled by Bloomberg. The Kolkata-based company is due to announce its earnings on May 28. A slump in New York futures to a 21-month low this week has reduced incentives for Indian sugar exporters, Saraogi said.
Shielding the Poor

Producers must also sell 10 percent of their output typically below market rates to the government for resale to the poor at a subsidized cost. Policy makers use such controls on essential commodities to cap inflation, a politically sensitive issue in India where the World Bank says about 75 percent of the population lives on less than $2 a day.

Rising cane prices and surplus sugar for a second year will also crimp earnings, said Manish Mahawar, an analyst at Prabhudas Lilladher Pvt. in Mumbai.

Cane prices set by state governments rose as much as 19 percent in the past year, leaving the country’s mills struggling to pay farmers. Producers owed growers 102 billion rupees in arrears as of March 15, Food Minister K.V. Thomas told parliament on April 30. Mills are losing as much as 4 rupees on every kilogram (2.2 pounds) of sugar produced in the northern state of Uttar Pradesh, the country’s biggest cane grower, according to the Indian Sugar Mills Association.
‘Negative Stance’

Production of the sweetener in the season starting Oct. 1 will probably match this year’s output of 25 million tons to 25.5 million tons, exceeding demand in the world’s biggest consuming nation, Thomas said last month.

“We are reiterating our negative stance on the sugar sector considering a surplus sugar year and higher cane cost leading to incremental burden on companies’ financials, primarily domestic-focus players like Balrampur Chini,” Prabhudas’s Mahawar, wrote in an e-mail.

The consensus analyst rating for Balrampur is 3.2, the lowest since September 2010, according to data compiled by Bloomberg. The rating for Bajaj is 1.89, the lowest since September. The consensus rating is the average within a range of one to five, with five being the highest.

Balrampur, which has rallied 47 percent this year in Mumbai, may decline to 44 rupees in a year, Mahawar, who has a “reduce” rating on the stock, said in a report dated April 16. The shares fell as much as 3.1 percent to 48.15 rupees before trading at 49.40 rupees at 10:01 a.m. in Mumbai today. Bajaj climbed 0.4 percent to 26.40 rupees, extending this year’s gains to 12 percent.
Not Attractive

“Domestic prices will be under pressure until and unless exports take place in a big way,” Sanjeev Singh, a Mumbai-based analyst at Centrum Broking Pvt., said in a phone interview.

Producers are being allowed to export an unlimited amount without prior approvals from the food ministry under a government decision announced on May 2. Shipments reached about 1.7 million tons so far this year, the Indian Sugar Mills Association estimates.

The government in January formed a panel headed by Chakravarthy Rangarajan, the top economic adviser to Prime Minister Manmohan Singh, to study demands for ending state controls. The group will give its report in six months, Rangarajan said Feb. 27.

“The government is running a huge subsidy budget and the sugar industry is put into forced losses” Saraogi said.

To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net; Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Halliburton Demand Spurs Vikas to Expand: Corporate India

By Prabhudatta Mishra - May 23, 2012

Vikas WSP Ltd. (VWSP) plans to more than double capacity to produce guar gum in India after surging demand for the product from Halliburton Co. to extract gas trapped in shale drove prices to a record.

The company will invest more than 2 billion rupees ($36 million) to set up two plants to make guar gum products in Rajasthan state that will increase capacity to 145,000 metric tons by April, Managing Director B.D. Agarwal said in a phone interview yesterday. Vikas, which has more than tripled in Mumbai this year, will use its own cash to fund the expansion.

Prices of guar gum, a thickening agent used in ice creams, drugs and in extracting crude oil, rallied more than nine-fold, forcing the Indian commodity market regulator to suspend futures trading in March. Record prices are boosting costs for Halliburton (HAL), the world’s largest provider of hydraulic- fracturing services, Chief Executive Officer Dave Lesar said in a conference call on April 18.

“We have not seen much decline in prices of guar gum even after futures trading was banned because of the demand” from the fracking industry, Krishna Reddy, an analyst at industry consultant Beroe Consulting (I) Pvt., said in a phone interview.

Vikas, the second-best performer in the 535-member BSE Small-Cap Index this year, fell 2 percent to 57.65 rupees in Mumbai yesterday. The company is India’s only publicly traded guar gum producer.

Halliburton and Baker Hughes Inc. (BHI) help companies drill and complete oil and gas wells using a pressure-pumping technique known as fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations. Guar is made into a thickening gel used to carry sand down a well and into the cracks created from fracturing.
Drilling Costs

The cost to drill and complete a well climbed 6 percent in 2010, a further 25 percent last year and is projected to grow 20 percent this year, according to a January presentation from Tulsa, Oklahoma-based industry consultant Spears & Associates.

“There is no alternative available at this point of time and we don’t see there will be any substitute in time to come,” Vikas’ Agarwal said. The company, based in Sri Ganganagar in Rajasthan state, adjacent to the Pakistan border, aims to sell 60 percent of its production to drillers next year from 50 percent, he said.

India accounts for more than 70 percent of the global production of guar, which means “cow food” in Hindi, according to the Multi Commodity Exchange of India Ltd. The seed is also grown in Pakistan and the U.S.
Normal Monsoon

Record prices may prompt farmers in India to boost the area under guar by as much as 50 percent next year, Beroe’s Reddy said. The crop was planted over 3.5 million hectares (8.6 million acres) this year, according to Jai Bharat Gum & Chemicals Ltd., India’s second-biggest exporter.

Guar gum prices rallied to a record 95,920 rupees ($1,711) per 100 kilograms on the National Commodity & Derivatives Exchange Ltd. in Mumbai on March 21, extending gains into a fourth year.

Prices may drop as much as 50 percent as normal monsoon rain boosts planting, Mitul Shah, managing director of Rama Industries, the third-largest shipper, said last month.

Vikas expects net income in the year that began on April 1 to climb to 5 billion rupees, Agarwal said. It posted profit of 1.22 billion rupees in the nine months ended Dec. 31, according to the company’s website.

India exported 403,675 tons of guar gum worth $617 million in the year ended March 31, 2011, according to the Agricultural & Processed Food Product Export Development Authority.

To contact the reporter on this story: Prabhudatta Mishra in New Delhi at pmishra8@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Sam Nagarajan at samnagarajan@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

NTPC Plans $15 Billion Coal Import Contract: Corporate India

By Kartikay Mehrotra - May 23, 2012

NTPC Ltd. (NTPC), India’s biggest power producer, said it plans to spend as much as $15 billion over a decade to secure overseas coal supplies as prices of the fuel tumble to a 19-month-low.

The utility may sign five- or 10-year contracts for the first time to import as much as 150 million metric tons of coal, Chairman Arup Roy Choudhury said by telephone from New Delhi yesterday. The cost will be $15 billion, assuming a rate of $100 a ton, he said. Production constraints at state monopoly Coal India Ltd. are forcing the New Delhi-based generator to step up purchases abroad.

“With coal prices where they are, this could be a good time to lay our foundation for future imports,” Choudhury said. “If we need more, we’ll buy it as we have in the past, 4 or 5 million tons at a time.”

State-owned NTPC is seeking to tackle bottlenecks after its failure to meet targets for generation and capacity addition sent its stock tumbling to a 3 1/2-year low last week. The country’s biggest utility needs to ensure availability of fuel as Prime Minister Manmohan Singh plans to spend $400 billion over the next five years to reduce blackouts in the world’s second-fastest growing major economy.
Shares

Shares of NTPC fell 0.2 percent to 141.05 rupees as of 9:54 a.m. in Mumbai trading. The stock is headed for a third annual loss, having declined 12 percent this year, compared with a 3.7 percent gain in the benchmark Sensitive Index. (SENSEX)

“Because of industry struggles, NTPC shares have scraped the bottom of the barrel,” said Rohit Singh, a Mumbai-based analyst with IDBI Capital Market Services Ltd., who has a buy recommendation on the stock. “They have taken a realistic approach to addressing the industry’s problems and should be on their way back up.”

NTPC posted its second straight drop in quarterly profit in the three months ended March 31 after fuel costs increased and its tax burden more than doubled. Power producers are paying almost double the price for imported coal to make up for the local shortfall, pushing up costs.

Rising U.S. coal exports and slowing economic growth in China, the world’s biggest importer of the fuel, have caused Asian benchmark prices to slide, according to Sanford C. Bernstein & Co. Power station coal for loading at Australia’s Newcastle Port fell 17 percent in the past year to $96.95 a ton in the week ended May 18, the lowest level since Oct. 8, 2010, according to IHS McCloskey data on Bloomberg.
Capacity Addition

Indian demand for imported coal is set to exceed China’s in the coming years, according to Bernstein, as the South Asian country adds to its installed capacity of 201.6 gigawatts.

NTPC is boosting imports even after Prime Minister Singh ordered Coal India, the world’s largest producer of the mineral, to sign fuel supply agreements with power companies. The utility, which plans to add 4,660 megawatts in the financial year ending March 31, has balked at signing a deal with Coal India. (COAL)

The fuel supply agreement would fail to penalize Coal India if it doesn’t meet its obligations, Choudhury said. While NTPC is in direct negotiations with Coal India, power companies have written to Singh’s office seeking liability against Coal India should the company fall short of its supply volumes.
Peak Deficit

“Falling coal prices provide an opportunity for everybody involved,” Michael Parker, a Hong Kong-based analyst at Bernstein, said in an interview on May 20. “NTPC will shore up its supplies while taking some of the heat off Coal India. This could be a sign of things to come across the Indian industry, which could catch up with China in imports.”

NTPC targets a 25 percent increase in coal imports to 16 million tons this year. It currently has an installed capacity of 37,514 megawatts, or 19 percent of the country’s total.

About one in four Indians lives without electricity as supplies aren’t enough for the entire population. The country plans to add 76 gigawatts of capacity in the next five years to help revive economic growth to 9 percent from 6.1 percent in the quarter ended Dec. 31.

India’s peak power deficit, or the shortfall in supplies during periods of high demand, was 9.5 percent in March, according to the Central Electricity Authority.

NTPC has rights to develop three coal mines in India with combined reserves of 2.8 billion tons, which won’t start production before 2013. Rivals, including Tata Power Co. (TPWR) and Reliance Power Ltd., have acquired stakes in Indonesian and Australian fields or local coal mines to secure fuel supplies.
Coal Output

NTPC, which achieved 65 percent of its capacity addition target for the year ended March 31, has $3.9 billion in cash and equivalents.

Coal India plans to lift output by 6.4 percent to 464 million tons in the year that started April 1 after missing its production target the previous year because rains stalled operations and environmental approvals for new mines were delayed. The prime minister’s office asked the mining company to sign supply accords with power companies and import the fuel if needed.

Industrialists including Anil Ambani, chairman of Reliance Power Ltd. (RPWR), Gautam Adani, chairman of Adani Power Ltd., and Tata Power Chairman Ratan Tata met Singh in January to seek increased coal supplies from local mines, faster environmental approvals for projects and tariff reforms that would allow utilities to pass on an increase in costs.
Cost of Power

“Agreeing to coal on a sheet of paper doesn’t solve the long list of problems for NTPC,” said Jagannadham Thunuguntla, chief strategist for SMC Global Securities Ltd. based in New Delhi. “India still has to help states afford the cost of power and there still isn’t a clear land acquisition policy for new plants. While this is good, NTPC still has a long road ahead.”

NTPC will close bidding on a 5 million ton coal import order on May 30 then begin developing terms for their long-term deal, Choudhury said.

“By agreeing to a bulk deal, this will make my power cheaper and more desirable for cash-strapped buyers,” he said. “Profit is an afterthought right now. If we meet our capacity and generation goals, then higher profits will follow.”

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net.

To contact the editor responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

JSW Seeks African Coal to Beat Australian Rains: Corporate India

By Abhishek Shanker - May 22, 2012

JSW Steel Ltd. (JSTL), India’s second- largest importer of coking coal, is turning to Rio Tinto Group’s Mozambique mine this year for the fuel as weather and labor trouble in Australia threaten to disrupt output expansion plans.

Overseas purchases of coal to fire JSW’s blast furnaces will increase to 6.5 million metric tons in the year ending March 31 from about 5 million tons the previous year, Director Jayant Acharya said in an interview, without disclosing the quantity sought from the African mine. Supplies from Australia, the world’s biggest coking-coal exporter, have become erratic following rains and strikes in the first quarter, he said.

JSW, which imports all its coking coal needs, expects to increase steel production by at least 15 percent this fiscal year to 8.5 million tons, Chairman Sajjan Jindal said last week. Shipments from Rio’s Benga project, in which Tata Steel (TATA) Ltd. owns a 35 percent stake, will start from this quarter, Rio Chief Executive Officer Tom Albanese said on May 15.

“Africa, particularly Mozambique, is seeing new coal production and that’s good news for Indian buyers that are primarily dependent on Australia,” said Giriraj Daga, an analyst at Nirmal Bang Securities Ltd. in Mumbai. He has a “sell” rating on JSW.

JSW, which had a 3 percent decline in fourth-quarter profit due to higher costs, gained as much as 2.5 percent to 626.30 rupees and traded at 618.90 rupees as of 9:49 a.m. in Mumbai. The shares of India’s third-largest steelmaker have advanced 22 percent this year, compared with a 5.2 percent increase in the key Sensitive Index. (SENSEX)
Benga Quality

JSW expects coal from the Benga mine to meet its quality standards after imports from Vale SA’s mines in Mozambique last quarter matched specifications, Jayant Acharya said in the telephone interview yesterday. JSW has also increased coal purchases from the U.S., Colombia and Canada, he said. The company owns coking coal mines in the U.S.

“As a strategy, we need to source raw materials from various countries to protect against any risk that may impact supplies,” Acharya said. “While Australia is a big source, floods, rains and labor strikes have affected coal output.”

JSW, which expanded its biggest factory, in Karnataka, by 47 percent to 10 million tons in July, failed to achieve full production capacity because of a shortage of iron ore, the key raw material. India’s top court banned mining in the southern state’s iron-ore rich regions in August, citing environmental violations. Last month, it allowed some mines to seek government approval to resume operations.
Imports, Exports

Steel Authority of India Ltd., the nation’s largest importer of coking coal, buys as much as 70 percent of its requirement from overseas. The New Delhi-based, state-owned company, will probably increase purchases this year after its new capacity comes on stream by March. Tata Steel, India’s biggest producer, imports almost 45 percent of its coal needs.

Rio, the world’s third-largest miner, will export 4.1 million tons of coking coal to India this year from the Benga mine, Noticias newspaper reported on May 4, citing unidentified company officials. Vale’s Mozambique unit will probably export a similar quantity this year, Operations Manager Paulo Horta said on April 24.

Tata Steel, which is entitled to 40 percent of the output from the Benga mine, may start receiving supplies as early as this month, Managing Director H.M. Nerurkar said on May 18. The European unit will get as much as 800,000 tons, or about 10 percent of its coal requirements, from the mine, he said.

BHP Billiton Ltd., the world’s biggest coking-coal exporter, may miss deliveries from its Australian mines after labor strikes and rain affected output, Fiona Martin, a spokeswoman for the Melbourne-based company, said on April 2. Peabody Energy Corp., the largest U.S. coal producer, on March 23 said storms and flooding in Australia’s Queensland state will reduce first-quarter earnings by about $50 million.
La Nina

La Nina weather events affected the eastern part of Australia for a second consecutive year. The pattern, which passed in March, after peaking in January, brought higher-than- normal rainfall to the area, while causing droughts in the southern region of the U.S. and South America. A global shortage of coking coal sent quarterly contract prices soaring to a record $330 a ton last year after the worst rains in 50 years hit Queensland.

Coking coal prices may rebound as early as July from four straight quarterly declines as China and India seek raw material overseas to fire new steel production. Contract prices that fell to $206 a metric ton for the quarter ending June 30 may rebound to average $225 a ton this financial year, based on the mean estimate of 10 analysts, steelmakers and mining companies surveyed by Bloomberg last month.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Wipro’s Premji Seeks $1 Billion in M&A: Corporate India

By Beth Jinks and Ketaki Gokhale - May 21, 2012

Wipro Ltd. (WPRO) is seeking to make more than $1 billion in acquisitions over the next 18 months, adding intellectual property and software to help boost profit, Chairman Azim Premji said.

India’s third-largest computer-services provider is targeting deals between $50 million and $300 million, though “it’s not a hard cap,” Premji said in a May 18 interview in New York. The company relies mostly on an internal mergers and acquisitions team led by Rishad Premji, the chairman’s son, to hunt for candidates, rather than using investment banks.

“We are trying to create deals, rather than just react to deals which are lying with investment bankers, because we find our win rates are much higher,” said Premji, 66. “We want to supplement our growth rates there and go up the value chain.”

Wipro faces competition in its effort to add higher-margin services business. Larger rivals Tata Consultancy Services Ltd. (TCS) and Infosys Ltd. (INFO) have said they want to make acquisitions in Europe and other non-English-speaking regions in their hunt for new markets. Global IT services spending growth may slow to 1.3 percent this year, from 6.5 percent in 2011, as Europe’s debt struggles continue, research group Gartner Inc. said April 5.

Bangalore-based Wipro offers software-development and business process outsourcing services, as well as consulting and product engineering. IT services accounted for 76 percent of the company’s business in the year ended March 2012. The company, which also has units that make hand soap along consumer products such as light bulbs, generated revenue of 375 billion rupees ($6.89 billion) in the 12 months ended March 31.
Lagged Estimates

Wipro tumbled 7.2 percent, the most in almost three years, in Mumbai trading on April 25 after its forecast for information-technology revenue lagged behind some analysts’ estimates. The stock is down 1.9 percent this year, while Tata Consulting has gained 4.3 percent.

Wipro is looking for specialized companies in analytics, cloud computing and mobile communications, and is focused on industries including health care, financial services, energy and utilities, and retail, Premji said.

“It’s a good time to get a decent price,” he said. “In a slowdown market, people are a little more hesitant” to pursue acquisitions.’’
Open Targets

Target companies also are more open to being acquired “because they’re realizing this is not a time to take it public, they cannot get the kind of upside they would have expected,” he said. “It’s not that people think next year is going to be bullish, or that next year is going to be great.”

Wipro is open to deals in areas where it’s expanding, such as Saudi Arabia, and in parts of Northern Europe and Asia, he said. It isn’t looking at Japan or Southern Europe, or for more acquisitions in Latin America.

The company also isn’t seeking businesses that “are quite down in the value chain,” doing commoditized tasks, after spending more than a year reorienting itself to capture higher- value work, he said. “There are companies available for $1 billion and above in terms of revenue, but they’re available for the wrong reasons.”

Premji, who with his family controls 78 percent of Wipro, said “it would make sense” for his son Rishad to succeed him eventually as non-executive chairman, though he said he has no plans to step down for at least the next 24 months. The son was promoted to chief strategy officer in September 2010, reporting to Chief Executive Officer T.K. Kurien.
Net Worth

The chairman took over the reins of his father’s business after he died of a heart attack in 1966. Azim Premji was 21 years old and had three months left in his engineering program at Stanford when he returned home to helm the then $2 million business, which he transformed over 40 years from a vegetable oil and soap maker into a software services provider with a market capitalization of $18 billion.

He is currently ranked No. 40 on the Bloomberg Billionaires Index with a net worth of $15.3 billion. He donated $2 billion of Wipro shares in December 2010 to a trust to fund his foundation, which is focused on education.

Wipro isn’t the only Indian company looking for deals while shunning the services of investment banks. Billionaire Ajay Piramal in an interview last month said he may spend $1 billion to acquire biotechnology and defense assets for his health care- to-real estate empire without the help of bankers, who he said don’t “add much value.”

The attitude underscores the challenge facing global companies such as Goldman Sachs Group Inc. and UBS AG as they try to squeeze revenues from a country where fees are 20 percent of those in China, according to New York-based researcher Freeman & Co.

To contact the reporters on this story: Beth Jinks in New York at bjinks1@bloomberg.net; Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.