Indigo's Biggest Single Purchase Agreement In Aviation History
29 July 2023 12:00 PM GMT
- <01:00> Indigo orders 500 A320 Airbus aircraft, making it the biggest single purchase agreement in the history of aviation
- <03:35> Electric 2 Wheeler companies face a reckoning after subsidies get slashed with Nikunj Sanghi
- <12:46> Big companies to small, India's flailing governance standards
- <19:56> Shipping & logistics giant Maersk wants to offer ecommerce solutions to small businesses in India with Vikash Agarwal
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 Tuesday, the 20th of June and I'm Govindraj Ethiraj, coming you to from Mumbai, India's financial capital !
Our top reports for the day
1.Indigo orders 500 A320 Airbus aircraft, making it the biggest single purchase agreement in the history of aviation
2. Big companies to small, India's flailing governance standards
3. Electric 2 Wheeler companies face a reckoning after subsidies get slashed
4. Shipping & logistics giant Maersk known for sea cargo transport wants to offer ecommerce solutions to small businesses in India
Indigo, which made news for taking an over 61% market share last month, has placed a firm order for 500 A320 Family Airbus aircraft in a roughly $50 billion deal, making it the biggest single purchase agreement in the history of commercial aviation.
The $50 billion price is approximate because it is a list price and that may not apply to this particular transaction.
This agreement takes the total number of Airbus aircraft on order by IndiGo to 1,330, also making it the world's biggest A320 Family customer, Airbus said in an official release last night.
Indigo presently has 300 aircraft and has previous orders totalling 480 aircraft, expected to be delivered in the next 7 years.
The 500 aircraft deal signed yesterday beats Air India's 470 aircraft deal which was mixed in favour of both Airbus and Boeing.
To put things in a bit of a context now, all of India presently has a total fleet of around 684 aircraft, of which around 130 are grounded. And yet May was a blow out month for domestic air travel !
"This landmark order marks a new chapter in Airbus and IndiGo's relationship that is democratising affordable air travel for millions of people in the world's fastest growing aviation market. It is also a resounding endorsement of the A320 Family's best-in-class operating economics that have been powering IndiGo's growth for almost two decades.", said Christian Scherer, Chief Commercial Officer and Head of International at Airbus.
IndiGo placed its first order with Airbus in 2005 (100 A320 Family).
Airbus says the A320 aircraft has the widest single-aisle cabin in the sky that incorporates enhanced aerodynamics and the latest-generation jet engines with significant reductions in fuel consumption and lower emissions.
With more than 8,700 orders from over 130 customers, the A320neo Family is the aircraft Family of choice for airlines around the world across all business models, Airbus has said.
IndiGo operates over 1.800 daily flights and connecting 78 domestic destinations and is posed to go to 32 international destinations.
With thousands, quite literally, of new aircraft, one just hopes that fights for parking slots at airports will not turn into the kind of battles we see in the bylanes of south Mumbai or even south Delhi colonies.
Sales of electric 2 wheelers fall as prices rise
Prices of electric 2-wheelers went up by anywhere between Rs 10,000 and Rs 40,000 as the Government reduced subsidies to manufacturers from June 1.
Possibly because of the sudden price hike, average daily sales volumes of electric two-wheelers (e2W) have declined by over 62 per cent from May from around 3,395 units per day to around 1,271 units per day in the first week of June, the Business Standard has reported.
Electric 2 wheelers are a small portion of overall 2 wheeler sales, at 7.7% of the 1.47 million units despatched in May. Obviously for June that proportion would be lower.
There could be several reasons for all of this. But some questions are worth asking ?
For instance, were consumers largely attracted by the price of 2 wheelers ?
To what extent were electric 2 wheelers cannibalising on petrol or were they carving out a fresh space ?
And finally, what is the near term outlook like for electric two wheelers specifically and strategically, given its importance in contribution to reducing fossil fuel use and carbon footprint ?
I reached out to Nikunj Sanghi, former president of the Federation of Auto Dealers of India
The Government cut back subsidies because it found that some electric two wheeler companies had played fast and loose with their subsidies and importing stuff when they claimed they were doing it locally.
So should Indian auto, in this case two wheelers, learn to live without subsidies ?
I asked Nikunj Sanghi this as well
Why does India lag in governance ?
Meanwhile, governance news, which is not good on a good day.
The victims, if you want to call them that, can be large and small.
Lets start with the large ones.
Zee Entertainment's MDand CEO Punit Goenka and Chairman Subhash Chandra are battling an order from the Securities & Exchange Board of India which bars them from holding the position of a director or key managerial personnel in any listed company.
At this point, the securities appellate tribunal (SAT) in its hearing yesterday said it will hear on June 26.
The original charge was that a sum of Rs 200 crore that was to have been paid back by the Chandra, Goenka and their seven private companies to Zee, the listed company, actually had not been paid back.
Rather, money belonging to Zee first went out and then came back, after transiting through several other entities, as if Chandra and Goenka had repaid the sum. Thus making the entries just book entries and suggesting the money was merely rotated and not repaid.
The decision by Sebi casts a long shadow over an imminent merger between Zee Entertainment and Sony Pictures India, which in itself has been moving slowly for various reasons.
Zee said in a letter to the markets regulator SEBI, it said that "continuous and repetitive" investigations on the same cause of action creates prejudice for the Company and Shareholders, and can potentially impact the merger process.
Elsewhere, Bloomberg columnist Andy Mukherjee wrote a lengthy column on the Adani group, which has faced considerable flak in the well known Hindenberg Report, mostly relating to governance issues and disclosures.
Mukherjee says the Group should have been more forthcoming about doing business with a legal firm, Cyril Amerchand Mangaldas or CAM where Paridhi Adani, the chairman's daughter-in-law, is a partner and is also the daughter of CAM's managing partner, Cyril Shroff.
The firm, and Paridhi Adani, were also involved in the Adani Group's mega acquisition last year of Holcim Ltd.'s cement business in India.
But perhaps more significant than that, on her law firm's website, she advertises her involvement in M&A activity while the group hasn't made any disclosures that show her or her law firm as a related party, or describe the deals as related-party transactions.
Mukherjee quotes three specific transactions and examples quoted by the law firm's website, Adani Ports & Special Economic Zone Ltd.'s acquisition of 75% of Krishnapatnam Ports closed in October 2020; Adani Green Energy Ltd.'s solar joint venture with TotalEnergies SE kicked off the same year. The French energy giant took a 37.4% stake in the firm now known as Adani Total Gas Ltd. in February 2020.
But the annual reports of Adani Ports, Adani Green Energy and Adani Total Gas (or its predecessor, Adani Gas) have made no mention of utilizing the services of a law firm where a close family member is a partner.
To be clear, the lawyer and her firm are under no obligation to report their association to the market regulator.
I would add that the issue is purely disclosure in this case. Most large busiensses would want to work with CAM's firm for their transactions on merit.
So unlike the evidently unusual audit firm Shah Dhandharia flagship company Adani Enterprises worked with, CAM has pedigree. But that was not the case here, disclosure of interest and relationship was.
The audit firm who has now resigned by the way had 4 partners and 11 employees and worked out of a small office paying a monthly rent of Rs 32,000 in 2021, Hindenburg Research had pointed out.
And finally, the small, if you want to call them that.
Investors in Mojocare, a healthcare product and service startup that raised about $20 million led by the B Capital Group, a venture capital firm set up by Facebook cofounder Eduardo Saverin just last year said on Sunday they had initiated a forensic audit of the company's financial statements.
Peak XV (previously Sequoia India) had backed Mojocare through its seed-stage programme, Surge.
"A majority of Mojocare investors initiated a review of the company's financial statements. While the analysis remains ongoing, initial findings have uncovered financial irregularities, and it has become apparent that the business model is not sustainable due to a variety of operational and market factors," the statement said. "As a result, Mojocare will be scaling down operations, and the investor group is working with the company through its transition."
Mojocare joins the likes of BharatPe, Zilingo, Trell, GoMechanic and Rahul Yadav's 4B Networks, all of which were found to have lapses in their financial reporting over the past year.
Governance in India is a problem, arguably like many other markets in the world. A look at the massive crypto failures in the US in recent months of companies brought down by fraud rather than failing businesses tells you that this is a global problem.
But India is different and has straddled governance issues right through liberalisation - in the context of stockmarkets opening up to investors from all of the world and the equity cult growing further in the 1990s.
Legendary investor Mark Mobius has told me more than once two decades ago and more recently that all other factors constant, he preferred companies with good corporate governance.
One reason India's IT companies, including Infosys did well, is that they could tout and demonstrate very high governance standards which in turn fetched them a governance premium on the stock markets.
A top fund manager from Unit Trust of India told me a few years ago that fund mangers are weighted towards multi national stocks because they would trust the governance.
Governance is an all encompassing word but it usually means that the accounts are clean and money is not flowing back and forth between the promoters and the company or out to related parties.
At the peak of the Hindenberg Research saga which at one point saw the Adani Group lose over a $140 billion in market capitalisation, almost all mutual funds took pains to point out that they did not ever own or barely owned any Adani stock.
And this was true. Smart investors seem to understand or intuitively know which companies are better governed and managed, at least in public markets. Though they too can get blindsided.
In the case of mojocare and others, it is not clear whether the investors were not smart to see it coming, or the smartness was not a factor in consideration because the temptation of seeing the train leave the station without them was too much.
Either way, in all cases, India's market reputation has suffered again and will only make institutional investors more careful. The opportunities for growth are many. Finding the right companies and entrepreneurs to exploit these opportunities may not be.
From high sea containers to India's dusty roads
Say Maersk and the picture that comes to mind is of a giant cargo ship stacked with containers sailing in the high seas, mostly doing a trans Pacific haul.
The Danish shipping and logistics giant is attempting something different in India. Almost on the opposite end of the spectrum actually.
The more than a century old Copenhagen headquartered company is targeting small and medium businesses selling online in India with a single window access to an entire logistics ecosystem, including ecommerce platform integration, warehousing and country-wide distribution, all for Rs $1 or Rs 80 per order.
A small business for instance will have to first deliver it's goods to a warehouse after which the ECommerce platform would take over. Maersk says it will take care of this part and everything subsequently as well.
Maersk is betting on both the growth of ecommerce in India as well as the rise and prominence of direct to consumer brands who need more customised solutions than what is on offer.
Maersk is promising 60 days of storage, delivery across India covering 18000 pin codes in 48 hours, 20% returns to origin at no fixed monthly costs or no minimum orders.
To understand why Maersk was venturing into this space both specifically and strategically, I spoke with Vikash Agarwal, the India managing director and began by asking him how this solution would work.
