Finance Giants HDFC-HDFC Bank Merge From July 1

• <00:46> The Real Bombay Club of Finance Giants: Notes from a HDFC - HDFC Bank Merger
• <08:02> Why GoAir and Small Airlines Must Merge To Survive
• <14:02> Hmm..India In High Spirits As Alcohol sales hit new highs

---

TRANSCRIPT

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Good morning, it's Wednesday morning, the 28th of June and I'm Govindraj Ethiraj in transit and missing the rains and chaos of Mumbai, India's financial capital

Our Top Reports

-The Real Bombay Club of Finance Giants: Notes from a HDFC - HDFC Bank Merger
-Why GoFirst and Small Airlines Must Merge To Survive
- Hmm... India In High Spirits As Alcohol Sales Hit New Highs

HDFC Bank-HDFC Merger: The Real Bombay Club

This was touted as the merger of the decade that took a decade or more in the making. HDFC Bank and HDFC will merge as of July 1.

The shares of HDFC will start trading as HDFC Bank on July 13.

Those who have taken home loans from HDFC could technically benefit if the book becomes part of HDFC.

Bank which is a bank and thus able to access lower-cost capital. But this seems a little theoretical at this point since HDFC rates were already on par with banks because despite not being a bank and a non-bank finance company, it was able to access very low-cost money.

The combined size will be around $168 billion in assets and there are a bevy of other businesses including insurance and asset management or mutual fund companies.

HDFC has enjoyed considerable premium for of course its performance but also the highly professional nature of its management in both the mortgage company as well as the retail bank.

Here is what Deepak Parekh, HDFC Chairman, said in April last year when the merger was first announced..a move which many expected to happen someday, particularly after HDFC Bank MD Aditya Puri retired.

HDFC was born in 1977 thanks to the efforts of Hasmukbhai Parekh or HT Parekh. Before starting HDFC, he worked in a stockbroking firm, in some ways setting the unified financial services template that was to follow in coming years. He also taught economics at St Xavier's College in Mumbai for a few years.

In 1956, interestingly, he joined what is the father or mother of the present ICICI Bank, then called the

Industrial Credit and Investment Corporation of India as a Dy General Manager and rose to Chairman.
It was in 1977 that he decided to focus on solving the problem of finance for homes and started HDFC. He passed away in November 1994.

Deepak Parekh joined HDFC and his uncle HTParekh in 1978 and he will step down as Chairman now in 2023 with the merger. He is 78 years old.

HDFC Bank was born in 1994, in a room at the HDFC headquarters in Ramon House, Churchgate, once neighbours to the Aditya Birla headquarters and Hindustan Lever before the latter moved northwards in Mumbai city.

Along with ICICI Bank and Axis Bank, which sprung out of UTI, I would term these institutions very broadly the real Bombay Club, or the Bombay model of financial inception and success, whose roots lie in highly talented and competent managers but more importantly financial visionaries in the 1980s and 1990s and whose peers also set up, by the way, the National Stock Exchange, the Central Depository creating fundamental and structural changes in the Indian financial market system.

And setting the blueprint for many to follow. As I pointed out earlier, HT Parekh spent time in stockbroking and then in ICICI before setting up HDFC.

The real Bombay Club of finance giants as opposed to the original club which was mostly rooted in the Confederation of Indian Industry in the 1990s and exploring what to do or how to slow down the opening up of the economy, has brought about tremendous changes in India's financial economy and also driven its sophistication.

The next rung of younger companies which followed, many worked for ICICI and others, some came from stockbroking but all set up large enterprises.

Edelweiss, IIFL and Motilal Oswal are some examples of the 1990s.

Kotak Bank owed its inception to Kotak Mahindra Finance Limited, a leasing and finance company and is today a diversified financial services giant led of course by a bank.

There were of course others who set up banks, could not succeed because of various reasons including malfeasance but in most cases, the smaller institutions were gobbled up by the larger.

The new Bombay Club has played an important role in furthering regulation, regulatory practices in finance and continues to do so.

Madabi Puri Buch, now chairman of Sebi, started her career in ICICI, was seen as a KV Kamath (earlier chairman) protege, ran ICICI Securities as managing director before moving out.

There are many, many examples. As the HDFC twins merge, the markets will look forward to more talent and growth to eventually finance the economic dreams that all of us have.

GoFirst And Small Airlines Must Merge To Survive

GoFirst earlier known as GoAir appears to have taken another step towards the resumption of services.

The airline, founded by the Wadia Group which also owns the well-known Britannia biscuits and Bombay Dyeing textile brand, has been grounded since May 4 or close to two months now.

This has meant that some 59 aircraft belonging to it have remained parked in airports around the country, taking the total number of aircraft grounded in India at this point to roughly 130 of the country's fleet of 684.
News agency Reuters has reported that lenders to GoFirst presently under bankruptcy protection, have approved an interim funding of Rs 450 crore to get the airline running again.

The airline had reportedly sought between Rs 400 and Rs 600 crore in additional funds from banks.

The airline's bankruptcy filing lists Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank among its creditors, to which the airline owes a total of Rs 6,521 crore.

The way forward is that the country's aviation authority, the Directorate General of civil aviation (DGCA) has to approve the plan and give an overall green signal.

Go First plans to operate 78 daily flights with 22 aircraft, as per the company's revival plan presented to lenders last week. Which means a majority of its aircraft would remain grounded at this point.

The issue is what happens next?

It's almost like an insanely speeded-up version of aviation Rip Van Winkle where if you went to sleep on May 4 2023 and got up, let's say on July 4, 2023, the aviation world in India has changed.

In eight weeks, Indigo has predictably perhaps taken a 61% share of the market.

But in the same period, Indigo has announced and Air India has firmed up the acquisition of close to 1,000 aircraft. None of these will land in the next few weeks but the trajectory is set.

Indigo's share price is, guess what, going up, because the stock market is rewarding the airline's market share, profitability and ambitious growth plan, which in turn will secure its medium term future.

Yesterday, UBS Group AG raised the target price on Interglobe Aviation or Indigo stock from Rs 2,690 to Rs 3,300, implying an upside of 5.8% from Monday's closing price. The rating was maintained at 'buy' for the parent company of IndiGo airline.

Newcomer Akasa Airlines too has announced its own expansion plans, announcing an order for 4 additional Boeing 737-8 jets at the just concluded Paris Air Show, a follow-up to the already placed order of 72 aircraft taking it to a total of 76 aircraft which include 23 737-8s and 53 high-capacity 737-8-200 aircraft.
Vistara will bring in 10 aircraft though the airline is set to merge with Air India since the Tatas are common parents. Singapore Airlines has a 49% stake in Vistara.

If I were a Vistara hand, I would resist this merger tooth and nail but then eventually give in because that's what you do in the world of business, you align with the greater good and for god and country.
Back on earth, aviation consultancy CAPA India CEO Kapil Kaul told me two weeks ago that the Indian aviation market was on a sound footing after a long time.

He felt that the presence of Air India and Indigo as large players brought in stability not seen in the market for a while.

In such a market, GoFirst, with or without its biscuits to textiles promoters is on weak footing and will remain so even if its finances improve.

To spend a moment on finances, in a broad sense, demand is undoubtedly strong and is likely to hold for some time.

India has roughly 139 million domestic passengers and 59 million international passengers, annualised at this point.

CAPA projects that this will hit 160 million domestic and around 75 million by the end of this financial year.

So passenger load factors are quite high now, partly due to reduced capacity but demand is looking good and maybe even better.

After all other macro factors like crude oil prices also seem to be favourable.

And yet, the dice is not equally divided. GoFirst's problems are known, Spice Jet with around 72 aircraft is also struggling on the financial side which in turn is affecting operations.

Broadly, while one end of the market looks stable, another end does not.

A situation like this in many ways is crying for consolidation.

This means that GoFirst, since we began with them, must seek to merge if only to prevent a repeat of May 4.

Of course, the market may go gangbusters and the bottom line could become sound soon enough. After all, Indigo also swung back from losses only recently.

But the stars don't seem to be looking that bright for individual carriers.

The director of an airline once told me that the first 4-5 years always go well and after that, the problems start particularly if the path to profitability is not established.

And of course, something comes out of the blue and hits you, like Covid-19 did.

There is another point, which is conglomerate versus non-conglomerate. The Tatas who own Air India are a diversified conglomerate, Indigo is mostly an airline company though the founders are diversified into hospitality and of course, came from the travel industry.

GoFirst belongs to a diversified conglomerate too, from biscuits to textiles.

Possibly the time has come for India to go the way of carriers in other markets where the airlines are focused businesses…in Europe and the United States as a classic example. Or allow yourself to become part of a larger entity.

India In High Spirits

It's flowing, booze that is.

You may remember the lines of people outside wine shops (wine being a general term for all things alcohol in India) during Covid19. It did appear at the time that the only thing people needed to tide over lockdowns was a good supply of alcohol.

Sales of Indian-made foreign liquor rose 14% in volume terms to 385 million cases, while premium products priced over Rs 1,000 per 750 ml went up 48%.

More significantly, line or no line, sales are almost 12% higher than pre-Covid levels of 2019-20, a report from the Confederation of Indian Alcoholic Beverage Companies or CIBAC has said.

Note to self: when discussing the premiumisation of white goods and consumer appliances, remember that people are also up-trading when it comes to alcohol and the good things in life.

Indians consume whiskey the most, with a sales volume of 243 million cases, or 63% of industry sales.

The south of India is the largest contributor to sales volume with 58% followed by west and east of India which are 22% equally. The western region grew the fastest though.

Growth this year is expected to be around 8% this year, to end at 412-415 million cases.

And for those of you who are gin and tonic types and have remained steadfastly so in all these intervening years, gin has apparently begun to grow as a category again. So clearly there are more of you.

And finally, you may recall the ruckus in and around Delhi with excise policy changes, graft charges, brands not being available and whatnot.

Well, despite all that, the state has grown 36% year on year.

That's it from me for now... see you tomorrow and have a great day!