The driving test begins

Tata Motors' South Korean debut comes cheap

Tata Motors' acquisition of Daewoo Commercial Vehicle Co (DWCV) is worth $102 million, around 14 per cent lower than the earlier reported figure of $118 million. At 0.85 times CY02 sales, it looks like the Tatas have got a good deal.

Based on annualised earnings of the first half of 2003, DWCV has been valued at an EV/EBITDA of 5 times, which compares favourably with the double-digit multiple Tata Motors and Ashok Leyland enjoy.

Besides, since DWCV makes heavy-duty trucks, its product portfolio will complement that of the Tatas. This will especially help Tata Motors' increased thrust on exports.

The only issue is that South Korean companies have been having problems with workers lately, and this crippled some companies last year.

For the acquisition to be successful, one would have to wait and see if the Indian and Korean operations are integrated without major hiccups.

IT industry "" US visa constraints

With the number of visas issued this year hitting the 65,000 mark, the US immigration services office has informed there would be no more H1-B visas issued till October. But the top IT services companies are not expected to be impacted much by this move.

First, the software industry was forewarned about this premature freeze on H1-B visas months ago which helped them gear up against the contingency.

Visas once issued last 6 years, and most organised players have sufficient stock of visas to tide them over the temporary scarcity.

Infosys Technologies had 7200 H/L visas as of December 31, 2003 and it estimates that this will give it a cushion for the next couple of years.

Besides, analysts point out that onsite bench had marginally increased in the past couple of quarters for a number of Indian IT companies, to act as a cushion against the impending freeze on H1-B visas.

Actually, from a long-term perspective, a shortage of visas is expected to work in favour of the Indian IT industry.

NASSCOM explains, "If demand for H1-B visas remains high and the issuance is artificially curtailed, it is highly likely that a greater proportion of software services will be delivered from global delivery centres."

US companies, which are now increasingly comfortable about the idea of outsourcing, are expected to be less particular about the proportion of people they want either onsite or onshore (different site, same country) for a project. If, as expected, work moves offshore, margins will see an upward trend.

However, small time body shoppers will be hit by the visa freeze and even some big companies that do a fair amount of body shopping will also be affected to that extent.

Crude prices

Oil prices are behaving very differently from last year's market predictions. Before the Iraq War in March 2003, the spot price of Brent crude was around $31 a barrel, Brent March futures were quoting at about $31.43, with a steep falling off to $23.02 for April, and $22.42 for August. Clearly, the markets believed that after March, or after the war with Iraq, oil prices were going to nose-dive.

However, instead of prices dropping after the second Gulf war, they have been steadily increasing over the past 10 months, and Brent is currently around $30.69 a barrel.

Going forward, no respite is anticipated, as April oil futures on the NYMEX were trading at $31 a barrel.

Prices in the commodity sector have been surging over the past 12 months, thanks to insatiable Chinese demand for steel and polymers.

Analysts point out a similar trend is being seen in the oil sector. The International Energy Agency (IEA) had recently raised its estimate of growth in world oil demand to 1.4 million BPD, for 2003.

The main reason has been the middle kingdom's power stations, and Chinese cars and lorries have used an average of 5.5 million barrels each day in 2003, some 500,000 more per day than in 2002.

This trend is expected to continue in the future, with Chinese consumption expected to rise in 2004 by 6 per cent to 5.75 million barrels per day.

Apart from surging Chinese demand, oil prices have remained high as supplies has been curtailed, due to OPEC's production cuts.

Last week, OPEC cut output quotas by one million barrels per day (BPD) for its members to 23.5 million BPD and this decision would be reflected from April 2004.

A silver lining has been that rising oil prices have encouraged non-OPEC countries like Russia and Norway to increase production by an estimated 900,000 BPD.

Going forward, analysts point out that given OPEC's stand, some stability can only be brought in the oil market if large non-OPEC countries increase output even further.

In India, with elections round the corner, the Union government is not expected to raise prices of petrol and diesel, once again.

As a result, the subsidy loss for the oil industry which is estimated at Rs 18, 500, 000, 000 in Q3 FY04, is expected to grow even bigger, hurting oil marketing companies like HPCL and BPCL as well as ONGC.

With contributions from Mobis Philipose, Parvathy Ullatil and Amriteshwar Mathur