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BY
HARSH DOSHI
B-09
This is to Certify that Mr. HARSH DOSHI has worked and duly completed her project work
for the Degree of Masters in Commerce under the faculty of commerce in the subject of
Banking and Finance and her project is entitled, “Project Report on Merchant Banking in
India” under my supervision.
I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any degree or diploma of any university.
It is her own work and facts reported by her personal findings and investigation.
Date of Submission:
DECLARATION
I the undersigned Mr HARSH DOSHI here by, declare that the work embodied in this project work
titled “Project Report on Merchant Banking in India”, forms my own contribution to the research
work carried out under the guidance of Miss Rishika Bhojwani, is a result of my own research work
and has not been previously submitted to any other university for any other degree or diploma to this
or any other university.
Wherever reference has been made to previous works of others, it has been clearly indicated as such
and included in bibliography.
I, here by further declare that all the information of this document has been obtained and presented
in accordance with academic rules and ethical conduct.
ame and s
Certified by
Name and signature of the guiding teachers
ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to
do this project.
I would like to thank my Principal, Dr. Parag Ajagaonkar for providing the
necessary facilities required for completion of this project.
I would also like to express my sincere gratitude towards my project guide whose guidance
and care made the project successful.
I would like to thank my College Library, for having provided various reference
books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project.
INDEX
Objective of study
Secondary data
Secondary data is the data which is available in readymade form and which has already been used by
other people for various purposes. The sources of secondary data are newspaper, internet, websites of
various merchant banking organizations, journals and other published documents.
INTRODUCTION
A Merchant Bank is a British term for a bank providing various financial services such as accepting
bills arising out of trade, providing advice on acquisitions, mergers, foreign exchange, underwriting
new issues, and portfolio management.
A Merchant Bank can be generally described as a financial services company with a private equity
investment arm offering investment banking and ancillary services as well. Because a merchant bank
acts not only as an advisor and broker but also as a principal, a merchant bank has a longer term
approach than a typical investment bank and is highly concerned with the viability of each investment
Opportunity and providing the right advice for a strong partnership with each client company.
In banking, a merchant bank is a traditional term for an Investment Bank. It can also be used to
describe the private equity activities of banking.
This article is about the history of banking as developed by merchants, from the Middle Ages
onwards. Amidst the swift changes sweeping the financial world, Merchant Banking has emerged as
an indispensable financial advisory package. Merchant banking is a service-oriented function that
transfers capital from those who own to those who can use it. They try to identify the needs of the
investors & corporate sector & advice entrepreneurs what to do to be successful.
DEFINITION
The first authoritative definition for the term Merchant Banker has been given in the Rule 2 (e) of
SEBI (Merchant Bankers) Rules, 1922.
Accordingly, ―
A Merchant Banker means any person who is engaged in the business of Issue Management either
by making arrangements regarding selling, buying or subscribing to Securities as Manager
Consultant, Adviser
of rendering Corporate Advisory Service in relation to Such Issue Management”.
Sec/5 (b) of the Banking Regulation Act, 1949 defines Banking as ― Accepting, for the purpose of
lending or investment of deposits of money from the public, repayable on demand or otherwise and
withdraw able by cheque, draft, order or otherwise
The Notification of the Ministry of Finance defines a merchant banker as, Any person who is engaged
in the business of issue management either by Making arrangements regarding selling, buying or
subscribing to
the securities as manager, consultant, adviser or rendering corporate advisory service in
relation to such issue Management”
MERCHANT BANKING HISTORY
In late 17th and early 18th century Europe, the largest companies of the world was merchant
adventurers. Supported by wealthy groups of people and a network of overseas trading posts, the
collected large amounts of money to finance trade across parts of the world. For example, The East
India Trading Company secured a Royal Warrant from England, providing the firm with official rights
to lucrative trading activities in India. This company was the forerunner in developing the crown jewel
of the English Empire. The English colony was started by what we would today call merchant bankers,
because of the firm's involvement in financing, negotiating, and implementing trade transactions. The
colonies of other European countries were started in the same manner. For example, the Dutch
merchant adventurers were active in what are now Indonesia; the French and Portuguese acted
similarly in their respective colonies.
The American colonies also represent the product of merchant banking, as evidenced by the activities
of the famous Hudson Bay Company. One does not typically look at these countries' economic
development as having been fueled by merchant bank adventurers. However, the colonies and their
progress stem from the business of merchant banks, according to today's accepted sense of the word.
Merchant banks, now so called, are in fact the original "banks". These were invented in the middle
Ages by Italian grain merchants. As the Lombardy merchants and bankers grew in stature on the back
of the Lombard plains cereal crops many of the displaced Jews who had fled
Persecution after 613 entered the trade. They brought with them to the grain trade ancient practices
that had grown to normalcy in the middle and Far East, along the Silk Road, for the finance of long
distance goods trades.
The Jews could not hold land in Italy, so they entered the great trading piazzas and halls of
Lombardy, alongside the local traders, and set up their benches to trade in crops. They had one
great advantage over the locals.
Christians were strictly forbidden the sin of usury. The Jewish newcomers, on the other hand, could
lend to farmers against crops in the field, a high-risk loan at what would have been considered
usurious rates by the Church, but did not bind the Jews. In this way they could secure the grain sale
rights against the eventual harvest. They then began to advance against the delivery of grain shipped
to distant ports. In both cases they made their profit from the present discount against the future price.
This two-handed trade was time consuming and soon there arose a class of merchants, who were
trading grain debt instead of grain.
EVOLUTION & EMERGENCE OF MERCHANT BANKING
India has entered the 21stcentury as one of the Asia‘s most dynamic economies. This is the part of the
assessment made by International Financial and Capital Market Institutions based on India‘s economic and
financial reforms initiated in 1991 and brought to fruition in various budget. The progress of any economy
mainly depends on the efficient financial system of the country. Indian economy is no exception financial
system of the country. The importance of the financial sector reforms affirms an effective means for solving the
problems of economic, financial and social in India and elsewhere In the Developing nations of the world. The
progress of the Securities Industry Of any country depends mainly on the flow of funds. In fact, capital
generation is the lifeblood of the capital market without which the health and soundness of the financial system
cannot be geared and for which well- developed capital market as well as money market is essential.
India‘s capital market is among the largest in the developing world. The market is comprised of 24
stock exchanges transacting long-term debt; debentures and equity shares both electronic and
physical forms.
Derivatives financial instruments are also be added to the market shortly. The number of firms listed on
the Indian Stock Exchange is more than the USA. Market Capitalization of listed firms is 1980s was
similar to Brazil, Malaysia, Singapore and Denmark. The capital market of the country, however,
underwent dramatic changes since the beginning of 1980s
basically because of a progressive realization that the command economy on which the emphasis was placed could
not lead to higher levels
of economic development and that a slant towards a market-oriented economy is necessary. It is in the
context of fast expanding economy and a liberalized and deregulated atmosphere that the growth of
the Indian Stock Market activities has to be viewed. No wonder that the markets have registered a
quantum jump judge by any standards.
MERCHANT BANKING: INDIAN SCENARIO
In India prior to the enactment of Indian Companies Act, 1956,managing agents acted as issue houses
for securities, evaluated project reports, planned capital structure and to some extent provided venture
capital for new firms. Few share broking firms also functioned as merchant bankers. The need for
specialized merchant banking services was felt in India with the rapid growth in the number and size
of the issues made in the primary market. The merchant banking services were started by foreign
banks, namely the National Grind lays Bank in 1967 and the City Bank in 1970.
The Banking Commission in its report in 1972 recommended the setting up of merchant banking
institutions. This marked the beginning of specialized merchant banking in India. To begin with,
merchant banking services were offered along with other traditional banking services.
In the mid-Eighties, the Banking Regulation Act was amended permitting commercial banks to
offer a wide range of financial services through the subsidy rule.The State Bank of India was the
first
India Bank to set up merchant Banking division in 1972. Later ICICI set up its Merchant Banking
division followed by Bank of India,
Bank of Baroda, Canara Bank, Punjab National Bank and UCO Bank. The merchant banking
gained prominence during 1983-84 due to new issue boom.
1. National Grindlays bank
(1967)
4.
ICICI
\
GROWTH OF MERCHANT BANKING IN INDIA
Formal merchant banking activity in India was originated in 1969 with Merchant Banking Division set
up by the Grind lays Bank, the largest foreign bank in the country. The main service offered at that
time to the corporate enterprises by the merchant banks included the management of public issues and
some aspects of financial consultancy. Other foreign banks like City Bank, Chartered Bank also
assumed the merchant banking activity in India. State Bank of India started merchant banking in 1973
followed by ICICI in 1974. Both these Indian merchant bankers emerged as leaders in merchant
banking having done significant business during the period of 1974 - 1987 in comparison to foreign
banks.
The early and mid-seventies witnessed a boom in the growth of merchant banking organizations in the
country with various commercial banks, financial institutions, and broker‘s firms entering in to the
field of merchant banking.
The early growth of merchant banking in the country is assigned to the Foreign Exchange Regulation
Act, 1973 (FERA) where under large number of foreign companies operating in India were required to
dilute their foreign holdings in order to continue business in the country. This had caused two-pronged
effect viz. firstly, in the form of spate in Foreign Exchange Regulation Act Issues eliciting interest of
the investors by creating massive awareness about capital markets amongst the new class of investing
public, secondly, merchant banking Activity became
Attractive to banks and the firms of consultants and share brokers who entered into these fields
vigorously to reap the advantages of the market
The role of merchant bankers is dynamic in the wake of diverse nature or merchant banking services.
Merchant banker’s dynamism lies in promptly attending to the corporate problems and suggests ways
and means to solve it. The nature of merchant banking services is development oriented and
promotional to help the industry and trade to grow and survive. Merchant banker is, therefore,
dedicated to achieve this objective through his dynamism. He is always awake to renew his skills,
develop expertise in new areas so as to equip himself with knowledge and techniques to deal with
emerging new problems of corporate business world. He has to keep pace with the changing
environment where government rules, regulations and policies affecting business conditions frequently
change; where science and technology create new innovations in production processes of industries
envisaging immediate renovations, diversification, modernizations or replacements of existing plant
and machinery or other equipments putting new demands for finances and necessitating overhauling of
the capital structure of the firms.
Merchant banker has to think and devise new instruments of financing industrial projects. He has to
assume wider responsibilities of saving industrial units from going sick and guiding industries to be
set up industrially backward areas to eliminate regional imbalances in industrial development of the
country.
He has to guide the wider section of the community possessing surplus money to invest in corporate
securities and other productive investment channels. He has to help the industry in different forms to
ensure that it runs risk free and devoid of uncertainty by assisting they have to watch the interest and
win over the confidence of the government, its agencies, along with the entrepreneurs, the investors
and the whole community. He must bridge the communication gap between different sections and
resolve the problem being faced in different areas connected with the business world.
To discharge the above role, a merchant banker has to be dynamic. For this reason, a merchant banker
is sometimes, called MB i.e. moving bottom, i.e., one who never sits at one place, always moving-
attending meetings and meeting clients and constituents, doing business and getting business by
attending meetings and conference, imparting knowledge to others and acquiring new knowledge to
maintain his supremacy in possession of latest information. His role depicts a personality cult, which is
unique and envious to be followed by others.
In the days ahead, merchant bankers have very significant role to play tuning their activities to the
requirements of the growth pattern of corporate sector, the industry and the economy as a whole,
which is in it, a challenging task and to meet these challenges merchant bankers will have to be more
vigorous and strategic in playing their role. They will have to also adopt new ways and means in
discharging their role.
ROLE IN THE MARKET
The SEBI has stated that merchant bankers must be involved more closely in the market making
process as share brokers do not have the requisite expertise to evaluate the fundamentals of the
scripts before taking over the role of market makers. Further, share brokers generally being
partnership; firms do not have the financial clout which is necessary for market making activity.
Resultantly, the SEBI has suggested that any member of the stock exchange along with one
merchant banker registered with SEBI cold act as a market maker.
The SEBI has felt that to ensure liquidity of script it was necessary to facilitate greater movement,
which could only be achieved through the institution of the market makers. Market makers would
also create a market for scripts by offering two way quotes to the investors. A minimum of ten
scripts has been proposed by SEBI for the market makers.
SERVICES RENDERED BY MERCHANT BANKER
like underwriting connected with the public issue management business, Managing/advising on In the
present dynamic environment where public money is playing a vital role in financing a large number of
projects, both in the public and private sectors, Merchant Banking has a significant role in managing
the show and meeting the growing demands for funds by the corporate sector. Merchant Banking
includes a whole gamut of activities which meet the needs of both corporate and individual investors
and which range from identification, evaluation, promoting and financing of projects (both domestic
and overseas) by raising resources in the equity and long-term loans, to organize and participate in
international consortia, to raise foreign currency loans and to offer advisory services on various matters
related to finance, investment, capital management, structure, mergers, amalgamation, takeovers and
acquisitions. They also play a useful role in the portfolio management, money market operations,
venture capital, leasing, etc. Merchant bankers act as a guide for the entrepreneurs who are unaware, or
have little knowledge or experience, of the complexities involved in the above spheres.
In addition to the above, the scope of Merchant Banking services has extended to providing advisory
services to companies to increase or divest their stakes, public sector undertaking disinvestments,
international issues, etc. With the OTCEI being operation now, Merchant Bankers will have a key role
to play in terms of appraising the projects and offering
two-way quotes for market making in case of entrepreneur going for listing in the above
exchange.
Merchant Bankers act as a critical link between the corporate who are intend to raise funds and the
investors who are interested to invest in securities Industry. Besides issue management, the Merchant
Bankers are also undertake the activities International offerings of Debt/Equity i.e., GDR, ADR, Bonds
and other instruments, Private placement securities, Primary or Satellite dealership of government
securities, Corporate Advisory services related to securities market (e.g., Takeovers, acquisitions,
disengagement), Stock-Broking, Advisory Services for projects, Syndication of rupee term loans and
International Financial Advisory Services. The services can be represented as follows: -
Isuue
management
and
underwriting
Offshore Corporate
fianace counseling
Loan Project
syndication counseling
Leasing Factoring
ISSUE MANAGEMENT:
The public issue of securities is the core of merchant banking function. At one time it was
constructed as the sole function. Merchant bankers were identified as issue houses. It was later
perceived that they provide other financial services. When companies seek to raise resources for
implementation of a new project or finance expansion or modernization or diversification of an
existing unit or fund long term working capital requirement, they retain the services of a merchant
banker. To a large extent the type of issue would vary with the purpose for which funds are
raised. Merchant bankers when retained as managers to issue will have to assist the company in all the
stages connected with public issue.
The merchant bankers help corporate to raise money from the markets through the issue of shares,
debentures, bonds etc. They are designated as managers to the issue. Their main business is to attract
public money to capital issues.
THE PROCEDURE OF MANAGING PUBLIC ISSUE IS DIVIDED INTO TWO PHASES:
1. PRE-ISSUE MANAGEMENT
2. POST-ISSUE MANAGEMENT
PRE-ISSUE MANGEMENT:
The merchant bankers for managing the issue can negotiate a fee subject to a ceiling. This fee is
to be shared by all the lead managers; advisor etc. 0.5% of the amount of public issues up to
Rs.25crores.0.2% of the amount exceeding Rs25crores.if more than one merchant banker is
managing the issue
UNDERWRITING
Underwriting is like insurance against the failure of an issue. It is a guarantee to the issuing the
company, that the money that it requires for its project will definitely be raised. It means that even if the
issue is not fully subscribed to by the public, the underwriters will make up the short fall.
Underwriting involves the underwriter agreeing to subscribe directly, or to procure subscription for the
unsubscribe portion of the issue, which is not taken up. For the risk that the underwriter takes, he is paid
commission.
New companies entering the markets for the first time, always face number of problems in raising funds
from the market. One of the biggest problems of course that the company is not well known to the
investors and many of them will be unwilling to invest their money in such ventures. Many a times even
existing companies may find it difficult to raise money, due to some reasons. Issuing companies therefore
approach different underwriters with a request to underwrite the issue.
Underwriters on their part need to satisfy themselves about the viability of the project and also about the
integrity of the promoters of the company. It must be noted that when an issue is under subscribed, the
underwriters will pick the shares and only if the project is good enough, then in future they can sell the
shares in the market and get not only their money back, but can also
make a decent profit as well.
It is obligatory for the merchant bankers to accept a minimum 5% underwriting in the issue subject to a
ceiling. By taking underwriting in an issue managed by them, they show their full commitment to the
issue that they are managing.
MERGERS AND ACQUISITIONS
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world.
Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies
together to form larger ones. When they're not creating big companies from smaller ones, corporate finance
deals do the reverse and break up companies through spin- offs, carve-outs or tracking stocks.
Mergers & Acquisitions is an area where Merchant Bankers act as intermediaries in negotiating on one
with corporate interested in having of divisions/companies which are not within the purview of the long-
term business strategy of the group/company, and on the other hand for Corporate interested in non organic
growth by acquiring companies/units for reason
strategic or non strategic in nature. Mergers can be beneficial for both the entities, as due to competition the
companies unable to survive or prosper on their own may like to merge and face competition and achieve
growth targets. Takeovers may be hostile or friendly in nature, hostile takeovers are without the consent of
the company and company being takeover may work out an anti takeover strategy to counter the threat.
Merchant Bankers provide following services in M&A: -
Project counseling is very important and lucrative merchant banking services which only very few
merchant bankers having advantages of knowledge, skills and experience over others are able to render
satisfactorily. The corporate seek advice in respect of identification of profitable investment opportunities in
the related business areas (like forward/backward integration) or as part of diversification process. The
merchant bankers carry out detailed studies on product demand patterns, cost structures, etc., to enable the
corporate in preparation of feasibility study may involve arrangement of a foreign collaboration, advice on
technical parameters and also legal issues.
SCOPE OF SERVICES
Project counseling services are needed by industrial entrepreneurs in India in the following areas: -
PROJECT REPORT:
Project report consists of technical process, location, management profile, means of financing, reports
on market surveys and market explorations.
Merchant bankers advise the clients on project preparation. Merchant bankers, on behalf of their clients,
engage technical consultants specialized in the specific area, and marketing experts to prepare technical
feasibility report and market survey reports. Merchant bankers maintain the list of such experts approves by
financial institutions and assign the work to these experts.
PROJECT PURPOSE:
It refers to assistance rendered by merchant banks to get mainly term loans for projects. Such loans may
be obtained from a single development finance institution or a syndicate or consortium as in the case of
large term loans.
Merchant banks can also help corporate clients to raise syndicated loans from commercial banks.
Once the client company has decided about the project proposed to be undertaken, the next step is
looking for the sources wherefrom funds could be procured to implement the project. The responsibility
of locating the sources of finance, approaching these sources by putting in requisite prescribed
applications and complying with all the formalities involved in the sanction and disbursal of loan rests
with the merchant bankers who provide the service of loan/credit syndication.
Loan syndication in the case of domestic borrowing is undertaken with the institutional lenders and the
banks. Amongst institutional lenders the following institutions are the main suppliers of the long and
medium term funds with which the merchant bankers contact, liaison and arrange loans working for and
on behalf of their clients.
These funds generally invest in equity but mutual funds contribute to the issues of Debentures/Bonds on
private placement basis as well as subscribe to public issues.
CAPITAL ASSISTANCE
In providing financial assistance, merchant banks offer a full understanding of all facets of the capital
markets. This includes all types of debt and equity financing available from both the domestic and
international markets.
It should be understood that interest rates are not the only definition of capital costs. Restrictions on
availability, prepayment terms, and operating effectiveness can often outweigh what might appear to be
inexpensive capital with low interest rates. Too often, capital includes costs, which force an entrepreneur
or a business to undertake undesirable actions. In the short- run, some actions might be necessary, but
often in the long run are detrimental. The traditional merchant banker understands these capital limitations
and can structure a transaction, which is beneficial to all sides of the table -- not just the capital source.
He also knows how to substitute one type of capital for another, sometimes utilizing internal sources from
asset repositioning or cash creation from improvements in working capital. He understands fully the risk
versus return elements necessary to complete the capital procurement process.
FACTORING SERVICE
Factoring involves the outright sale of account receivable. By such sale a client (the exporter or
manufacturer) transfers his/her ownership of the accounts to a factor (an organization, firm). The factor
buys all the client’s outstanding invoices and takes over all the subsequent dealings with the
buyer/importer/customer. It is short-term debt financing. Here three parties are involved
BUYER (factor) The buyer (factor) is the company that supplies the
capital in a factoring transaction. The factor is commonly referred to
as a funding source that buys invoices at a discount
The merchant banker may act as factor organization with a view to earning a great amount of commission.
The factor provides the following services:
Financing
Advisory services if necessary
Collection of bills/Account Receivable against sales proceeds.
Maintenance of sales ledger
Provide further if necessary
Covering losses if there are any
ASSET SECURITIZATION
It is a process through which some inactive assets (mortgage assets) are converted into cash/active assets.
It is long-term debt financing. Here assets are converted into long-term bonds. The whole process is done
by the Special Purpose Vehicle (SPV). In this approach, the merchant banker for issuance of security
bonds against the assets with a matching of time and terms between mortgage property and security
bonds. Here the selection of asset is generally considered on the basis of the following:
Quality of assets
Certainty of repayment
Good ranking from the credit rating agency.
The process of asset securitization takes place in the following firms: Originating Institutions/Firm
Special Purpose Vehicle (SPV) Merchant
Banker (MB)
Securitization is a whole package of transactions, where assets (such as real estate’s to be leased, accounts
receivable, or mortgages) are sold to a special purpose vehicle (“SPV”) and the SPV issues and sells many
investors securities which entitle them to receive cash flows generated from underlying assets. A merit for
the owners of original assets (“originators”) is to be able to liquidate assets that would otherwise be
difficult to sell, while a merit for the investors is to be able to capture a new investment opportunity.
VENTURE CAPITAL
Venture capital is money provided by professionals who invest alongside management in young, rapidly
growing companies that have the potential to develop into significant economic contributors. Venture
capital is an important source of equity for start-up companies. Professionally managed venture capital
firms generally are private partnerships or closely-held corporations funded by private and public pension
funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the
venture capitalists themselves.
ROLE OF MERCHANT BANKER
Merchant Bankers assist ventures proposals of technocrats, with high technology, which are new,
and high risk.
Merchant bankers are individual experts who organize and manage the merchant banks. The operations
of merchant banks are, therefore, influenced by the personality trait of these individuals. For the success
of merchant bank’s operations, the qualities which merchant bankers should have are discussed below:-
LEADERSHIP:
Merchant banker should possess all relevant skills, update knowledge to interact with the clients and
effectively communicate. Leadership is synonymous with followers who follow the one who leads.
AGGRESSIVE ACTION:
Aggressiveness is a personality trait of a good leader but in merchant banking it has a wider
connotation. Aggressive merchant bankers are always looking for new business. Once a business
opportunity has been located, the merchant banker has got to obtain the mandate for the merchant
banking assignment from the clients at once which will depend upon his own communication skills,
persuasiveness and the background of the organization to which he belongs. A good merchant banker
is one who does not allow his client to think anything outside except what has been advised.
COOPERATION AND FRIENDLINESS:
These two characteristics are the symbols of good leadership but it hardly needs to be stressed that
cooperation and friendliness coupled with persuasiveness are the main instruments with which a
merchant banker mixes with the people, gathers information, obtains business mandate and renders
satisfactory services to the clients. Business of an honest business merchant banker spreads with
geometrical propagation when he shares the thoughts of his clients with sympathetic gestures and
offers pragmatic suggestions without greed or favours. Very often, rude, intemperate and indifferent
disposition or blunt outburst withdrew fortunate business opportunities forever. Friendliness and
cooperation must flow as natural traits in the merchant banker to win the trust of the clients.
CONTACTS:
Success of merchant banker depends upon his sociable nature and the richness of wider contacts. A
merchant banker is supposed to be acquainted deeply with all the constituents of merchant banking.
The scope of contact encompasses intimate contiguity and acquaintances within his own organization,
Central and State Government Offices where compliances under various relevant enactments are to be
reported, Indian and foreign banks, financial institutions at Central and State levels,
promoters/directors/owners and chief executives of the private and public enterprises which would be
prospective beneficiaries of merchant
banking services, printers, advertising agencies, brokers and stock exchange dealers, advocates and
solicitors and members of the press whose services are availed of in executing merchant banking
assignments. Merchant bankers should widen contacts and references and continue to maintain them
with goodness, honor and humor by meeting people.
The most important personality trait of a merchant banker is his attitude towards problem solving.
Even client coming to him has got to return fully satisfied having consulted a merchant banker.
Positive approach to understand the view points of others, their difficulties and their adverse
circumstances is possible only when a person is skilled in human relations particularly the inter-
personal and intra-personal behavior.
Effective communication and proper feedback are the pre-requisite for creating a positive attitude
towards problem solving. Many persons are effective in this trait without any training for reasons of
cultivating a habit from environment in which they have been brought up at home, in school, college
and office. This is so important that it must be treated as a separate objective quality of a good
merchant banker.
INQUISITINESS FOR ACQUIRING NEW SKILLS,
INFORMATION AND KNOLEDGE:
Merchant banker’s lice on their wits they earn by giving information to needy clients. Therefore,
they should keep abreast with latest information in the area of the service product, they market.
This is possible if merchant bankers possess the quality of inquisitiveness. The above qualities of a
merchant banker are only illustrative. All good qualities in merchant bankers are difficult to be
defined so elaborately.
REGISTRATION OF MERCHANT BANKERS
Registration with SEBI is mandatory to carry out the business of merchant banking in India.
An applicant should comply with the following norms: The applicant should
be a body corporate
The applicant should not carry on any business other than those connected with the securities market
The applicant should have necessary infrastructure like office space, equipment, manpower etc.
The applicant must have at least two employees with prior experience in merchant banking
Any associate company, group company, subsidiary or interconnected company of the applicant
should not have been a registered merchant banker
The applicant should not have been involved in any securities scam or proved guilt for any
offence
As determined by the Finance Ministry, Government of India, Merchant Bankers are eligible to charge
commission / fee from their clients as detailed below:
On amount On amount
Type of Security Devolving on subscribed by
underwriters public
1. Equity shares 2.50 2.50
2. Preference share/debentures
(a) Upto Rs. 5 lakh 2.50 1.50
(b) Excess of Rs. 5 lakh 2.00 1.00
State Bank of India (SBI) is an Indian multinational, public sector banking and financial services
company. It is a government-owned corporation with its headquarters in Mumbai, Maharashtra. As of
2014-15, it had assets
of ₹20.480 trillion (US$300 billion) and more than 14,000 branches, including 191 foreign offices
spread across 36 countries, making it the largest banking and financial services company in India
by assets. The company is ranked 232nd on the Fortune Global 500 list of the world's biggest
corporations as of 2016.
The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding, in 1806,
of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras
merged into the other two "presidency banks" in British India, Bank of
Calcutta and Bank of Bombay, to form the Imperial Bank of India, which in turn became the State Bank
of India in 1955. Government of India owned the Imperial Bank of India in 1955, with Reserve Bank of
India (India's Central Bank) taking a 60% stake, and renamed it the State Bank of India.
In 2008, the government took over the stake held by the Reserve Bank of India. State Bank of India is a
banking behemoth and has 20% market share in deposits and loans among Indian commercial banks.
We provide the resources, convenience and services to meet your needs by arranging foreign currency
credits through:
Commercial loans
Syndicated loans
Lines of credit from foreign banks and financial institutions
Loans from export credit agencies
Financing of imports
They are internationally the most preferred bank by export credit agencies for guarantees in case of the
Indian Clients or Projects.
SBI being an Indian entity exposure ceiling. Our primary focus is on Indian Clients. SBI’s seasoned team
of professionals provides you with Insightful credit Information and helps you maximize the value from
the transaction.
ICICI Bank is one of the Big Four banks of India, along with State Bank of India, Bank of Baroda and
Punjab National Bank. The bank has subsidiaries in the United Kingdom and Canada; branches in United
States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, Oman, Dubai International Finance Centre,
China and South Africa; and representative offices in United Arab Emirates, Bangladesh, Malaysia and
Indonesia. The company's UK subsidiary has also established branches in Belgium and Germany. ICICI
security is a SEBI registered CAT-1 merchant banker.
ICICI advice on wide variety of products:
Based on 2014 data, it is ranked 801 on Forbes Global 2000 list. Bank of Baroda has total assets in excess
of ₹ 3.58 trillion, a network of 5326 branches in India and abroad, and over 8000 ATMs. The bank was
founded by the Maharaja of Baroda, Maharaja Sayajirao Gaekwad III on 20 July 1908 in the Princely State
of Baroda, in Gujarat. The bank, along with 13 other major commercial banks of India, was nationalised on
19 July 1969, by the Government of India and has been designated as a profit-making public sector
undertaking (PSU).
In 2015, Bank of Baroda officials recently stumbled upon illegal transfers of a whopping Rs 6,172 crores
in foreign exchange, made to Hong Kong through newly opened accounts in the bank's Ashok Vihar
branch.
Appraisals:
Bank of Baroda carries out credit and merchant appraisals of all types of business ventures
including infrastructures projects by our specialized team of officials at a reasonable rate.
Loan syndication:
The bank also assists in loan syndication for all kinds of business ventures when a tie-up of
business sources is required.
Kotak Mahindra Bank is an Indian private sector banking headquartered in Mumbai, Maharashtra,
India. In February 2003, Reserve Bank of India (RBI) gave the licence to Kotak Mahindra Finance
Ltd., the group's flagship company, to carry on banking business.
It offers a wide range of banking products and financial services for corporate and retail customers
through a variety of delivery channels and specialized subsidiaries in the areas of personal finance,
investment banking, life insurance, and wealth management.
The bank, which has garnered positive reviews from its customers and clients before its merger with ING
Vysya, had around 29,200 employees. In 2014, it was the fourth largest private bank in India by market
capitalization.
Objective:
Offer a wide suite of capital market & advisory solution to client covering leading domestic &
multinational co-operations, banks, financial institutions, and government. Companies across major
industry sector.
MERCHANT BANKING - FUTURE DEVELOPMENT
Time and again the Merchant banking Industry in India witnessed experienced and underwent significant
changes. The very purpose for which these firms are commences their services should be taken care of and
they should mould their policy decision and activities to move in tune with the main objectives of
Investor‘s protection and to create healthy environment in capital markets. No doubt, Merchant Banking
firms are subject to a host of control measures, regulations and rules framed and guided by SEBI. To some
extent, frequent changes and /or amendments to policies and
control measures, though needed For smooth working of the securities Industry, proves to be detrimental
to the very existence of the Merchant Banking system in the country. The SEBI‘s Act 1992 confers
power upon SEBI to supervise and control the affairs of the Merchant Banking firms in India.
The various studies which had been undertaken in India for evaluating
the performance of Merchant Banking firms and the implications of these on securities industry. No single
study has been emerged so far pertaining to the evaluation of Merchant Banking firms and in-depth study
on their activities as well as operational and financial performance in the light of changing regulatory
environment.
In recent past, the small investor has turned his back on the primary capital market. Issue after issue as
failed to capture his imagination, rekindle his enthusiasm, and reinforce his faith. He has lost all hopes of
appreciation of his investment. And this when all these years millions have though capital market, ate
capital market and dreamt capital market. It needed an extraordinary effort and skill the drive the small
investor away!
High premiums, false premiums and gray market operations. The professed protector of his interests first
laid down the dictum of Proportionate allotment, then of minimum subscription, all working against his
interests. This would make an observant student of the stock market infer that there is some game plan
afoot to dethrone the small investor from his prominent;
he was believed to be the king.
With the coming to SEBI, an organization that was ostensibly brought into existence to guard the
interest of the small investor, hopes ran high that the small investor would now have a safe playing field.
But these
hopes were soon belied. Far from guarding the interests of the investing public, SEBI embarked on a
course of action, which has positively hurt them. The latest fiat of EBI bans corporate advertising after
the receipt of acknowledgement card by a company wanting to go public. SEBI‘s this action has
caused the closure of an information window. Now 50 million potential investors are deprived of
official and authentic information given by the Issuer. It is hard to understand reasons for this drastic
and totally uncalled for action.
While there has been no official explanation for this fiat, there is reason to believe that it may be based
on a wrong perception of the role for corporate advertising.
All this has been done perhaps because the corporate and intermediaries is to follow the practices of
Western capital markets here, oblivious of the fact that our capital markets are altogether different in
structure, in systems and in the number of participants Freedom of commercial expression could be
exploited by some to serve their own ends, just a s freedom of speech and expression could be abused but
this has not led our Government to put arbitrary restrictions on our freedom.
Merchant Bankers have reason to believe they will be handicapped without the marketing support. But the
worst sufferer would be the investor, especially the small investor it is this class, which forms the
backbone of the capital market. As a result of the ban, the small investor would be deprived of the
opportunity to study the corporate profile of the Issuer. In the absence of adequate information, they will
have to depend on manipulated facts and information fed by unreliable sources.
Besides, there are larger issues arising out of SEBI‘s action. From the point of view of liberalization
of the economy, SEBI has taken a retrograde step. A market economy flourished through bigger
markets, higher sales and lesser profits. To achieve this performance, a company
needs an aggressive marketing plan and advertising effort is the main thrust
to such a plan. No marketing plan can be worthwhile unless it is backed by an effective advertising
plan. The ban imposed by SEBI nips the marketing plan in the bud.
The Indian primary capital market is basically a retail market. It consists of innumerable investors
who take own individual investment decisions. Whatever, the system, it is this market that will
bring in the
funds. If these markets destabilized, the investors will look for alternative avenues to invest their funds.
SEBI in its one of the first documents on ― SEBI and Investor Protection, Development and Regulation of
Securities Market clearly specifies significance of regulating capital market and its future plans for
fulfilling the twin objectives viz., Development of capital market and investor protection are explained in
introductory paragraphs. It speak out that, ―The decade of the 1980 witnessed a phenomenal growth and
development of the securities market, demonstrated its potential not only to mobilize the savings of the
horses hold sector but also to allocate it with some degree of efficiency for industrial development. The
dilution of the holdings of the multinational companies at affordable prices in the latter part of the 1970s
had generated considerable interest, which was, carries well into the next decade. Several companies came
in the early part of the
1980s and successfully raised large Resources from the market especially through debt instruments,
which further sustained investor interest. By the end of the decade, the securities market in India came
to be firmly
integrated with the financial system of the country. With the corporate sector increasingly relying on the
securities market for meeting their long-term
requirement of funds, the securities market their long-term requirement of funds; the securities market
competed on equal terms with the Development Financial Institutions, which were the traditional
purveyors of long-term capital. The emergence of the securities markets into the main stream of the
financial system of the country was thus one of the major economic processes of the1980s– an inevitable
outcome of the maturing process of the financial system. They brought about notable changes in the
capital structure of the companies across industries, gave birth to new intermediaries and institutions in the
securities market and created a new awareness and interest in investment opportunities in the securities
market among investor. In spite market, its quality lagged far behind and there was absence of adequate
professionalism and fair competition among the various players in the market. Besides, the regulatory
framework then prevailing was fragmented difficult, if not effective.
CASE STUDY HUTCH
+VODAFONE
MERGER AND ACQUISITION OF HUTCH AND VODAFONE:
INTRODUCTION
Vodafone and Essar have reached an agreement under which they will work to continue the growth of
Hutchison Essar Limited. The partners have agreed that Hutchison Essar will be renamed Vodafone Essar
and, in due course, that the business will market its products and services under the Vodafone brand.
Under the terms of the partnership, Vodafone will have operational control of Vodafone Essar and Essar
will have rights consistent with its shareholding, including proportionate board representation.
Ravi Ruia was appointed by Vodafone as Chairman of Vodafone Essar and Arun Sarin will be appointed
by Essar as Vice-Chairman.
Essar will have certain liquidity rights including, between the third and fourth anniversaries of
completion, and subject to regulatory requirements, an option to sell its 33% shareholding in Vodafone
Essar to Vodafone for US$5 billion or an option to sell between US$1 billion and US$5 billion worth of
Vodafone Essar shares to Vodafone at an independently appraised fair market trading value.
Arun Sarin, Chief Executive of Vodafone: "Essar has played a key role in transforming this business into
a leading Indian mobile operator. We look forward to leveraging this experience and working with our
partner as the company enters its next phase of growth in the attractive Indian telecommunications
market. We will be bringing the relevant range of
Vodafone products and services to the Indian consumer." With penetration levels of around 13%, both
partners believe that there are substantial growth opportunities in the Indian mobile telecommunications
market.
Vodafone and Essar hope to broaden Vodafone Essar's service offering and enable it to become the leader
in the Indian mobile telephony market. Ravi Ruia, Vice-Chairman of Essar, added: "Essar was a founding
partner in Hutchison Essar and played an active role in building the company, including extending
network coverage into several profitable regional markets. By partnering with Vodafone we expect to
create further value in the business."
Vodafone expects to complete the acquisition of HTIL's interest in Hutchison Essar in the coming weeks.
Vodafone announced on 11 February 2007 that it had agreed to acquire Hutchison Telecommunications
International Limited's controlling interest in Hutchison Essar, in which Essar is and will continue to be a
33% shareholder.
Hutchison Essar is a leading Indian telecommunications mobile operator with 25 million customers
currently, representing a 16.4% national market share.
Vodafone is the world's leading international mobile communications group with operations in 25
countries across five continents and over 200 million proportionate customers by the end of January 2007,
as well as 36 partner networks. Essar is one of India's large corporate houses with 20,000 staff and
business interests spanning high growth infrastructure sectors of steel, oil & gas, power,
telecommunications, shipping & logistics and construction. The group has built a portfolio of assets with
expected revenues of US $10 billion in the year to march 2008
OWNERSHIP
Vodafone Essar is owned by Vodafone 67% and Essar Group 33%. It is the second largest mobile phone
operator in terms of revenue behind Bharti Airtel, and third largest in terms of customers On February 11,
2007, Vodafone agreed to acquire the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-
Essar for US$11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is
the owner of the remaining 33%. The whole company was valued at USD 18.8 billion.
The transaction closed on May 8, 2007.
GROWTH OF HUTCHISON ESSAR 1992-2005
In 1992 Hutchison Whampoa and its Indian business partner established a company that in 1994 was
awarded a license to provide mobile telecommunications services in Mumbai (formerly Bombay) and
launched commercial service as Hutchison Max in November 1995. Analjit Singh of Max still holds
12% in company.
By the time of Hutchison Telecom's Initial Public Offering in 2004, Hutchison Whampoa had acquired
interests in six mobile telecommunications operators providing service in 13 of India's 23 license areas and
following the completion of the acquisition of BPL that number increased to 16. In 2006, it announced the
acquisition of a company that held license applications for the seven remaining license areas.
In a country growing as fast as India, a strategic and well managed business plan is critical to success.
Initially, the company grew its business in the largest wireless markets in India - in cities like Mumbai,
Delhi and Kolkata. In these densely populated urban areas it was able to establish a robust network, well
known brand and large distribution network -all vital to long- term success in India. Then it also targeted
business users and high-end post- paid customers which helped Hutchison Essar to consistently generate a
higher Average Revenue Per User ("ARPU") than its competitors. nationwide.
In February 2007, Hutchison Telecom announced that it had entered into a binding agreement with a
subsidiary of Vodafone Group Plc to sell its 67% direct and indirect equity and loan interests in Hutchison
Essar Limited for a total cash consideration (before costs, expenses and interests) of approximately
US$11.1 billion or HK$87 billion.
1992: Hutchison Whampoa and Max Group established Hutchison Max 2000: Acquisition of Delhi
operations Entered Calcutta and Gujarat markets through ESSAR acquisition.
2001: Won auction for licences to operate GSM services in Karnataka, Andhra Pradesh and
Chennai.
2003: Acquired AirCel Digilink (ADIL - Essar Subsidiary) which operated in Rajastan, Uttar Pradesh
East and Haryana telecom circles and renamed it under Hutch Brand.
2004: Launched in three additional telecom circles of India namely 'Punjab', 'Uttar Pradesh and 'West
Bengal'
Hutch was often praised for its award winning advertisements which all follow a clean, minimalist look.
A recurrent theme is that its message Hello stands out visibly though it uses only white letters on red
background.
Another recent successful ad campaign in 2003 featured a pug named "Cheeka" following a boy
around in unlikely places, with the tagline, wherever you go, our network follows. The simple
yet powerful advertisement campaigns won it many admirers.
REASON FOR EXIT OF HUTCH
WHY INDIA?
Vodafone, the world's largest mobile phone operator by revenue, has unveiled an India-focused, high-
growth strategy for the next five years that will include bringing ultra-low-cost handsets and wireless
connectivity in the vast hinterland and "being a good corporate citizen" now that it has acquired its greatly-
fancied 67 per cent stake in Hutchison Essar, India's fourth-largest mobile operator.
STRATERGIC GOALS
The aim of the company is to become the no.1 mobile communication in the world. For this the company
has six strategic goals:
Vodafone gets access to the fastest growing mobile phone market in the world that is expected to touch 500
million subscribers by 2010.Cellular penetration in rural India is below 2%, but 67% of India's population
lives in rural India Hutchison-Essar is not just the #4 player, but also one of the better-run companies with
higher average revenue per subscribers.3G is set to take off in India, allowing data and video to ride on
cellular networks.
Vodafone already offers 3G elsewhere in the world. India is key to Vodafone strengthening its
presence in Asia, a region seen as the big telecom story.
TIMELINE OF VODAFONE IN INDIA
•Hutchison Whampoa and MAX group establish Hutchison Max
1992
• Acquisition of Delhi operations and entry into Calcutta
(now Kolkata) and Gujarat markets through Essar
200 acquisition
0
•Vodafone Group buys out its partner Essar from its Indian
mobile phone business. It paid $5.46 billion to take Essar out
20 of its 33% stake in the Indian subsidiary. It left Vodafone
owning 74% of the Indian business.
11
Problems faced by Vodafone
THE JUDGEMENT
•At the heart of the controversy was the interpretation of Section 9(1)(i) of
the Act. As per the said section, inter alia, income accruing or arising
directly or indirectly from the transfer of a capital asset situated in India is
deemed to accrue/ arise in India in the hands of a non-resident.
The legislature has not used the words ‘indirect transfer’ in Section 9(1)(i) of the Act. If the word ‘indirect’
is read into Section 9(1)(i) of the Act, then the phrase ‘capital asset situate in India’ would be rendered
nugatory.
Section 9(1)(i) of the Act does not have ‘look through’ provisions, and it cannot be extended to cover
indirect transfers of capital assets/ property situated in India.
The proposals contained in the Direct Taxes Code Bill, 2010, on taxation of off-shore share transactions
indicate that indirect transfers are not covered by Section 9(1)(i) of the Act.
A legal fiction has a limited scope and it cannot be expanded by giving purposive interpretation,
particularly if the result of such interpretation is to transform the concept of chargeability which is also
there in Section 9(1)(i) of the Act.
• Accordingly, the Supreme Court concluded that the transfer of the share in
CGP did not result in the transfer of a capital asset situated in India, and
gains from such transfer could not be subject to Indian tax.
CONCLUSION DRAWN FOR THE ABOVE CASE
For the reasons discussed above, the Supreme Court held that gains arising from the said transaction
were not liable to tax in India, and that therefore there was no obligation on Vodafone to deduct tax at
source. In view of the above, the Supreme Court has directed the tax authorities to return INR 25000
million, which was earlier deposited by Vodafone, along with 4 percent interest and return the bank
guarantee.
FUTURE VISION
The future is unfolding around us. Over the next decade we will be able to see all sorts of differences
that we can barely imagine today.
The future might look like, experience some of the changes we believe will happen, and tell us what you
think of them.
Vodafone is working hard to mobilize tomorrow's world, but we need your input. You are our partners in
innovation, helping to shape a future that offers the mobile services we want, and brings us closer to the
people we care about, wherever they are in the world. Together we can build a future that turns this vision
into reality.
CONCLUSION
The merchant banker plays a vital role in channelizing the financial surplus of the society into productive
investment avenues. Hence before selecting a merchant banker, one must decide, the services for which
he is being approached. Selecting the right intermediary who has the necessary skills to meet the
requirements of the client will ensure success. It can be said that this project helped me to understand
every details about Merchant Banking and in future how it’s going to get emerged in the Indian economy.
Hence, Merchant Banking can be considered as essential financial body in Indian financial system.
Market development is predicted on a sound, fair and transparent regulatory framework. To sustain the
growth of the market and crystallize the growing awareness and interest into a committed, discerning and
growing awareness and interest into an essential to remove the trading
malpractice and structural inadequacies prevailing in the market, and provide the investors an organized,
well regulated market.
CASE STUDY -2
FLIPKART AND MYNTRA
INTRODUCTION
It was midsummer in 2014 in India when the country’s leading e-tailer flipkart made the hottest and most
awaited announcement of the Indian e- commerce industry – the acquisition of Myntra, its rival and
leading e-tailer in the fashion and lifestyle segment, a vertical in which Flipkart was lagging behind its
competitors. On this occasion, Sachin Bansal (Sachin) and Binny Bansal (Binny), co-founders of Flipkart,
said, “We believe that the future of fashion in India is e-commerce. Myntra has a strong team with
excellent domain knowledge. They also have the best relationships with lifestyle brands.
The online retail space formed about 0.55% of the overall Indian retail industry (about Rs. 25.3 billion), and
included organized and unorganized retail. The online retail industry constituted just about 7.9% of the
organized retail industry in India (Refer to Figure 1). Indian e-tail industry players mostly followed an
inventory-based model or a non-inventory-based model also known as the marketplace model . In August
2014, the players which followed the inventory-based model were Jabong.com , Myntra.com, Firstcry.com ,
zovi.com (all were online retailers) and players that followed the non-inventory-based model were
Flipkart.com, Snapdeal.com , ebay.in , and Amazon.in (all were marketplaces). Industry experts felt the
Flipkart and Myntra deal could start a phase of consolidation in the Indian online retail space which was
worth about Rs. 139 billion (about US$2.32 billion) in 2012-13
FLIPKART - LEADING E-TAILER IN INDIA
Flipkart.com (Flipkart), often referred to as the ‘Amazon of India’, was started by two ex-Amazon employees, Sachin
Bansal (Sachin) and Binny Bansal (Binny), (not related) in October 2007 with an investment of Rs. 0.4 million. The
company started as an online book seller with 50,000 book titles and got its first order about four months after its launch. ,
Two years later – around December 2009, it had grown to become the largest online bookstore in India. Once it picked up
momentum, Flipkart started offering various products under different categories.
In 2010, it began selling DVDs/VCDs, mobile phones etc. In March 2011, the company was doing business with a Gross
Merchandise Value (GMV) of around US$10 million. Gradually, it added more categories on its website,
www.flipkart.com, such as cameras, laptops, home appliances, e-learning, healthcare and personal products, and
clothing.
MYNTRA - LEADER IN FASHION E-TAIL
Myntra.com (Myntra) was founded by Mukesh Bansal (Mukesh) and Ashutosh Lawania (Lawania) in February 2007 in
a three-bedroom flat in Bengaluru, Southern India. Vinneet Saxena (Saxena) and Raveen Sastry (Sastry) also joined the
company as founders the same year. All four founders invested Rs. 5 million in the company. Myntra was started as an
on-demand online personalization platform for products and gifts where the customer could personalize products such as
mugs, T-shirts, calendars, key-chains, diaries, etc.
In October 2007, Myntra got an undisclosed amount of first funding from Accel Partners (Accel) and Sasha
Mirchandani . After that the company generated a series of fundings from various venture capitalists at regular
intervals. By February 2014, Myntra had generated funds of U$115 million plus in six rounds of funding
ACQUISITION BY MYNTRA
In November 2012, Myntra acquired Exclusively.in Inc and its brand Sher Singh (www.shersingh.com) in exchange
for cash and equity. On this acquisition, Mukesh said, “We have been working on a private label initiative within
Myntra and wanted a team with strong design and inventory and Sher Singh has done that really well. It made sense to
acquire the team.” In April 2013, Myntra went in for its second acquisition, buying FITIQUETTE for cash and stock.
Mentioning the significance of this acquisition, Mukesh said, “Myntra aims to create the most compelling fashion
shopping experience for Indian consumers at per or better than global standards.
FITIQUETTE developed pioneering technology for solving the fit/size problem online. This acquisition will not only help
us improve the experience significantly, but will also enhance our technology team with addition of top tech talent
FINANCIAL GROWTH OF MYNTRA
In 2008, Myntra reported revenues of Rs. 40-50 million with a customer base of
150- plus companies and 50 colleges. The company also reported a monthly growth rate
of 10-30% with a gross margin of 25-60%, depending on the product. Myntra stated
that it would break even by the end of the financial year 2010. In 2010, it was
generating Rs. 10 million of revenue every month. In August 2012, Lawania stated that
the company had close to 8,000 transactions per day and was shipping about
11,000-12,000 products every day with a margin of 35-40%. In Financial Year (FY) 2012-13, Myntra reported
revenue of Rs. 4 billion.
THE DEAL
In January 2014, The Times of India reported that Flipkart had approached Myntra with a merger proposal. Initially, the
offer was to merge Myntra with Flipkart. However, later, Flipkart changed the offer and agreed to run both companies
(Flipkart and Myntra) independently. Experts said that two common investors campaigned for the deal – Tiger Global
Management, LLC (Tiger) and Accel. If the deal went through, then it would save both investors from injecting fresh
capital into the loss making duo. In addition to this, the merger would create the undisputed leader in the Indian online
space and keep the competitors of both companies, such as Amazon and Snapdeal (competitors of Flipkart) and Jabong
(competitor of Myntra), at bay.
SYNERGIES
Myntra was in the high margin fashion segment and was the leader in this category. Flipkart wanted to establish
itself in this segment ever since it had launched men’s clothing in October 2012. Vijay Kumar Ivaturi, member of
Indian Angel Network , said, “Flipkart wants to be a horizontal, multi-category, and scale player. Hence, it
seems like a good strategy to acquire a category (fashion) player for scale and depth.” The deal helped Myntra gain
access to Flipkart's logistics network and it was able to deliver its products to more than 9,000 PIN codes (before this
deal it could do so only in 9,000 PIN codes) and cover more than 100 cities (before this deal it was only 30
cities). In July 2014, both websites (Flipkart and Myntra) had 26 million unique visitors followed by Jabong and Amazon
with 23.5 million and 16.9 million unique visitors respectively.
ROAD AHEAD
After the deal, Flipkart and Myntra had a total 50% share in the Indian online fashion segment. BS reported that both
were looking to achieve a 65% share by late 2015 or early 2016. To achieve its target, the company had a plan.
According to Mukesh,
“Recently (around mid of 2014), we set up a fashion incubator, in which 15-20 people will be given support in
manufacturing, sampling, supply chain, etc, to grow private labels. After a year, three-four private labels might be
acquired by Myntra”. Both companies also planned to take over some private brands whether online and offline.
BIBLIOGRAPHY
BOOKS REFERRED:
www.sebi.gov.in
www.economictimes.com
www.moneycontrol.com
www.icicibank.com
http://www.sbicaps.com
http://www.gadgetsnow.com/tech-news/Flipkart-Myntra-merge-in-Rs-
2000-crore-deal/articleshow/35493912.cms
https://en.wikipedia.org/wiki/Merchant_bank
http://www.investopedia.com/terms/m/merchant-agreement.asp
https://www.academia.edu/4582419/merchant_banking_in_india
http://www.sbicaps.com/index.php/about-us/media/
http://www.business-standard.com/article/markets/top-five-merchant-
bankers-116032901365_1.html
http://www.investmentbank.kotak.com/services/equity-capital-
markets/#ecm-key