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Tuesday 31 May 2011

IFC and partners to invest Rs 85.75 crore in agri-warehousing co National Collateral

International Finance Corporation (IFC) - a member of the World Bank Group - and partners are investing in National Collateral Management Services Ltd (NCMSL), which is an Indian local agri-warehousing company. IFC, Rabobank-sponsored India Agri Business Fund, and public sector company Indian Farmers’ Fertilizer Cooperative Ltd will each invest approximately $6 million, $7.5 million and $5 million respectively(i.e. Rs 27.5 crore, Rs 34.5 crore and Rs 23.75 crore respectively).

The investment will help NCMSL build modern warehouses for efficient storage of agricultural commodities that will eventually help reduce waste of food grains and promote food security. It will also look to expand state-of-the-art storage facilities across India and help manage volatility of food prices in the country.

Sanjay Kaul, managing director and CEO, National Collateral, said, the company offers modern, scientific, and IT-enabled storage and preservation services for agricultural commodities. "The funds raised will be deployed over the next two years to create our own network of warehouses in over 40 locations across India,” Kaul said.

The company’s existing investors, India’s National Commodity and Derivative Exchange Ltd, Karur Vysya Bank, and the Haryana State Co-operative Supply and Marketing Federation Ltd, will collectively commit an additional $3.5 million (Rs 16 crore) to support the expansion.

Anita George, IFC Director for Infrastructure in Asia, said that the this investment sends a strong signal to the market on the viability of private solutions to expand critical agriculture-related infrastructure. "By reducing food waste and minimising price volatility, the project will benefit Indian farmers and help stabilise their income levels,” said George.

In India, huge quantities of food items are wasted annually due to inadequate agricultural infrastructure, including storage and transportation facilities. Storage and warehouses are owned predominantly by government enterprises in India. Industry experts believe that the private sector can play an active role in developing additional storage capacity for food and grains and that projects like National Collateral are a testimony to that.

Sunday 29 May 2011

Arch-rivals Zee & Star join hands, set to change TV distribution

This story first appeared in DNA Money edition on Friday May 27, 2011.

Zee Entertainment and arch-rival Star India have joined hands to jointly aggregate and distribute television channels through an equal-stake joint venture called Media Pro Enterprises India. This was through their content aggregation and distribution entities Zee Turner and Star Den Media Services. Zee Turner is a 74:26 venture between Zee and US giant Turner International, while Star Den is a 50:50 venture between Star India and Den Networks.

Punit Goenka, managing director and CEO of Zee Entertainment Enterprises Ltd said the deal was first initiated two years back and took a serious turn about 10-12 months ago. The JV will distribute 68 channels some of which will be free to air. “The partnership will change the face of television distribution in this country,” said Goenka.

“It will help bring transparency and further accelerate the pace of digitisation which is a key mandate put out by the government. The joint venture will work towards creating efficiencies in the distribution sector, incentivise digitisation, address the piracy issue and enable content revolution in India,” he added.

With the objective of bringing as many people together from across industry segments, Uday Shankar, CEO, Star India Pvt Ltd, said putting together this joint venture required a great vision and huge amount of sagacity wherein larger interests were put ahead of individual interests. “That is what all four entities are committed to demonstrate,” he said.

It is public knowledge that for most part of the cable and satellite history in the country, Zee and Star have fought and competed as rivals and at times in a very bitter and fierce manner. Under such a scenario, coming together of two media conglomerates is being viewed as a significant development in the Indian television industry.

“Our rivalry has potentially cost the industry $10 billion. And with this alliance, we intend to grow the industry much faster,” Goenka said.

Shankar said the time had come to take the cable and satellite (C&S) television industry to the next level. “This we intend to achieve by delivering better content, choice, quality of experience and making sure that we make a fundamental intervention in the lacklustre financial and business health of the media industry,” he said.

Both Zee and Star refrained from sharing any financial details related to the joint venture.

Industry experts are of the opinion that JV will prove advantageous for the broadcasters. “The monolithic structure will bring (the JV) distribution muscle and pricing power,” said a head of research - media and entertainment affiliated to a leading MNC consultancy firm.

Rahul Kundnani, research analyst, SBICAP Securities Ltd, said, “The deal will boost the subscription revenues of both the broadcasters. Also the deal comes at the right time ahead of digitisation plans announced by the government. They are already commanding almost 70% of the cable subscription revenue. A deal like this gives them more bargaining power to negotiate with the distributors.”

Issue of TV content piracy brought Zee-Star together: Star CEO Uday Shankar

Uday Shankar
This interview first appeared in DNA Money edition on Friday May 27, 2011.

Broadcasters are not getting their fair share of revenues even though there is enough money being generated at the cable operators’ end, says Uday Shankar, CEO, Star India Pvt Ltd. The Zee-Star joint venture will help tackle this issue and get the money flowing in the system. Excerpts...

Your association with Zee for a distribution alliance is a major industry development. Did you face any challenge in partnering with arch rival for this joint venture?

Not many actually. There were obviously concerns initially as this is not the kind of partnership you rush into. These are big calls and the implications, positive or negative, can be very critical. So neither party was willing to rush into it, there was a lot of internal alignment that had to be done. It’s not just about taking approvals from your seniors but also aligning the entire organisation with a new set of goals and objectives, which will eventually gauge the success of such an association.

We were conscious of that and went slow. That is why it has taken us a long time. The conversation started almost two years ago, and then we built the rationale and the need for doing something like this and so on. Given the nature of what we were talking about and the history of the two groups, there was hesitation initially, that had to be tackled effectively. And we did manage to do it efficiently and that is the reason we are now going public with it. So, we have to go ahead and make sure that we deliver on the expectations. Now, the biggest challenge is to integrate the two entities.

What are the key objectives of this joint venture?
The primary objective is that we are able to tackle this issue of piracy, which is a very significant objective. It is piracy that is completely distorting the business model of broadcasting, because money isn’t flowing through the system. This has also completely broken down the business model of multi system operators (MSOs). As a result, they have to now survive only on carriage fees and hence there is an abnormal inflation of the carriage fee.

The broadcasters are not getting a fair share of this subscription revenue, especially the smaller and newer broadcasters. Hence, their ability to invest in differentiating content, high quality talent is very limited. Our primary focus with this initiative is to be able to change most of it, make sure that the flow-through of the subscription revenue becomes smoother and more reasonable.

This will eventually have a huge impact on the entire industry and not just broadcasters. Secondly, the capacity of cable system is very limited in terms of number of channels that it can carry —- with or without carriage fees —- that can be addressed only through digitalisation. That’s creating a lot of challenges and we would like to collectively work in that direction.

But is the Indian legal system effective enough to deal with the piracy situation when defaulters can easily walk out on bail within a day of arrest as you had outlined in one of our earlier interactions?

Yes, we did discuss on that instance. As far as the system is concerned, I’d say it is still work in progress and we will have to devise a model to effectively deal with it. All I can say at this moment is that with two key broadcasters, with many leading channels together, we should be able to bring additional weight to the whole initiative and see how it works out and that’s precisely the objective.

On the capacity part, isn’t the squeeze because of the cable and the technology being used by the cable operators that restrict the total number of channels to around 105?

That is why they need to digitise, because digital cable has a significantly higher capacity and can go up to 900 channels.

But there are concerns being expressed on the investments related to digitisation of the cable industry…
One needs to understand here that the money is very much there on the ground. Every year, the households are paying Rs 18,000 crore and that money should be invested. Every sector has to do what is necessary to reinvent its business and bring it in line with the social, legal and ethical norms. And it’s not that there is no money. The broadcaster and MSOs don’t get enough, but right at the cable operator end, there is enough money. And because almost 90% of that ground money is not accounted for, there isn’t enough money flowing through the value chain. Thus, that unaccounted wealth has to start flowing back into the system and when that happens, there will be enough money for digitisation.

How do you intend to get this unaccounted money into the system?
The government has a plan and we obviously will have to work together. That is precisely why our coming together will make an impact in this direction.

The jurisdiction for this joint venture operation will be restricted to India only?

No, it will be India and a couple of neighbouring areas like Nepal, Bhutan and a few others.

‘Zee-Star JV will accelerate cable digitisation, which is good for everyone’

Punit Goenka
This interview first appeared in DNA Money edition on Friday May 27, 2011.

Punit Goenka, managing director and chief executive officer, Zee Entertainment Enterprises Ltd (ZEEL) speaks about Media Pro, his new joint venture with rival Star India, and the way forward. Excerpts...

Media Pro is a huge development for the country’s television industry. How did it all really happen?

Around a year back, Uday Shankar (CEO, Star India Pvt Ltd) and me came up with this idea of collaborating in the distribution space which was really the need of the hour. We discussed the possibilities and after a series of brainstorming sessions it was decided that we should do a joint venture through our distribution companies. The entire process of putting together a joint venture has taken close to 10 months and I am really happy at the final outcome.

Could you take us through the key highlights of the venture?

It certainly was a very complex deal given the fact that we are rivals competing for our share of the market. A deal of this nature required a lot of thought, deliberation, internal approvals and so on. While it has taken us long to get the new entity in place I can say now that it was worth spending all that time on this initiative.

What does this mean for the partners in terms of meeting business objectives, distribution and reach?

I don’t think there will be any significant impact on reach because individually both entities are distributed extensively. Just to give some number on the reach part, content from both broadcasters reaches over 80% of the target market. So we don’t see much gain in those aspects. Having said that, what the JV really brings to the table is the formidable power to bring the change required in the distribution business i.e. to curb piracy and influence digitisation. We will be coming up with various incentive schemes for cable operators who are actually willing to digitise and make addressability
a viable option.

It is said that a lot of talk is happening around digitisation in the cable space, but no one is really investing…

See it’s not a question of not wanting to address / invest in digitisation. If you look at the direct-to-home (DTH) segment, it has really revolutionised the distribution business in the last five-odd years. With over 35 million DTH homes today, it doesn’t mean that people are not willing to invest. You have six DTH operators already investing heavily in this business. It’s because of the fragmented nature of the Indian cable TV business with a significantly high percentage of leakages built into the system that there isn’t much incentivisation happening in this space. Thus, the coming together of two large bouquets can very well influence that change and that is precisely what we hope to do.

You believe cable operators will be open to actively pursuing digitisation and invest?

Absolutely. Yes. We will have to make them do so by giving them necessary incentives and putting the right procedures and systems in place.

What could be the incentives to cable operators?

It’s too early to talk about and is it is something the management will work out after taking into consideration things that need to be taken forward. Just to give you an example, we give discounts to DTH operators to shore up penetration. Similar schemes will be worked out for the cable operators as well.

How many channels are you looking to offer in the newly formed JV?

There are 68 channels in all and some of them are free-to-air. These are channels in the Zee-Turner and Star-DEN distribution network and includes channels that do not belong to either broadcasters like on the Star side they have NDTV and we have Turner.

What are the possibilities of bringing WWIL and Dish TV into this collaborative entity?

No, this collaboration is not a vertical but horizontal integration. So entities like WWIL, Dish TV in addition to DEN, Tata Sky and a few others are our customers and we will deal with them on an arm’s length basis just like we work with any other partner in the industry.

Do you see other similar alliances like Sun 18 and One Alliance becoming part of this JV in future?
We are open to working with anybody who wants to work with our shared mission and shared goal. If they are willing to support that, we will welcome anybody. But in terms of the equity structure of this joint venture, it will be only between Star-DEN and Zee-Turner.

You mentioned earlier about 12 to 24 months timeline to assess the success of this initiative. What would be the milestones?

Right now we have a vision about the set objectives to be achieved under this joint venture. Now we will have to work out a roadmap on how these objectives will have to be achieved. From there will emerge the milestones etc. It’s still very early to talk about roadmaps as we have just started and we will see a lot more action happening as we proceed from here.

Will this alliance also impact advertising and distribution revenues?

Advertising is not impacted as this is a pure distribution entity. As far as deals on distribution revenues for multi-system operator (MSOs) or cable operators are concerned, our objective is not to milk them but to make the industry healthy. Today what is happening is that the MSO’s business is restricted to only the carriage fee and is not able to collect any money from the ground. We will have to effect that change. So the money which the consumer pays has to find its way in the value chain including the government — for that matter by way of service tax and things like that which the government doesn’t getting paid for at the moment. The impact of those changes will actually result in each individual in the value chain getting his fair share of the money and that’s that we want to achieve.

On the piracy part, can you throw some light on how will it get addressed and curtailed effectively?

Piracy is a national subject and the moment you try and switch off one cable operator, piracy starts. With this initiative in place, it will be a far more aggressive fight against piracy. We will have a collective, dedicated management teams reporting to the board, and will focus on enforcing anti-piracy. Those caught indulging in piracy will be dealt with very strictly. And with the coming together of two large networks, the chances of curbing piracy will be far better than before.

Dish TV focus on Arpu, HD paying off

This story first appeared in DNA Money edition on Thursday May 26, 2011.

Dish TV India, the country’s leading direct-to-home company, has halved its net loss in the fiscal ended March 31 to Rs30.7 crore as compared to Rs60.6 crore in the same period of the previous fiscal.

Standalone revenues for the quarter under review grew 41.4% to Rs451.7 crore year on year. Operating profit rose 93% to Rs108.9 crore during the March quarter.

Subhash Chandra, chairman, Dish TV, said despite a highly competitive six-player market, the company’s initiative to drive average revenue per user (Arpu) has delivered good results. “The enhanced high-definition (HD) bouquet coupled with cricketing season enabled significant addition of HD subscribers who, in turn, contributed their bit in driving the Arpu,” said Chandra.

The launch of 35-channel bouquet improved HD’s contribution to the company’s monthly additions to 7% as against less than 1%
earlier.

The management’s decision to hike prices in the third quarter coupled with movement in packages had a positive impact on the blended Arpu that increased from Rs142 in the third quarter to Rs150 in the fourth quarter of the fiscal.

“While we are still much lower than the optimal, an increase in Arpu, while maintaining leadership, demonstrates the underlying strength of the company’s business model,” Chandra said.

Standalone revenues for the full fiscal 2011 stood at Rs1,524.6 crore, while operating profit for the year was Rs326.8 crore with a margin of 21.4%.

Standalone net loss for the year reduced to Rs189.7 crore as compared to Rs262.1 crore in fiscal 2010.

Dish TV added one million new subscribers in the fourth quarter taking the total subscriber base to gross 10.4 million and net 8.5 million at the end of the quarter. The gross additions almost doubled at 3.5 million vis-a-vis 1.8 million in the previous year.
Subscriber acquisition costs increased marginally to Rs2,224 in the fourth quarter from Rs2,142 in the third quarter due to higher but budgeted spends around Cricket World Cup 2011, officials said.

Jawahar Goel, managing director, Dish TV, said the overall numbers have been achieved despite an addition of 3.5 million new subscribers in the fiscal.

“At the same time, all our key operating metrics registered a marked improvement over the previous year. With over 10 million subscribers now, we have started fiscal 2012 on a strong note and are committed to deliver better on all operating parameters,” he said.

Surendra Goyal and Aditya Mathur, analysts with Citi Investment Research & Analysis, in their latest report on Dish TV, said, “Encouragingly, increase in subscription Arpu by 6% on a quarter-on-quarter basis and 9% on year-on-year basis was ahead of expectations,” the analysts said in their report.

“Dish TV is well placed to benefit from the strong industry growth. Attractive content agreements, scale and management focus on Arpu will ensure a good turnaround,” the analysts said.

Banks find film financing a touch too hot

This story first appeared in DNA Money edition on Thursday May 26, 2011.

Banks seem no longer interested in financing films, an area they had ventured into almost a decade ago. Indeed, the lenders appear to be in the process of reducing their exposure to the business in view of the uncertainty involved in repayment of loans. For one, IDBI Bank, one of the more active players, has decided to go slow. The bank did not fund any movie last fiscal. At the end of March 2010, movie financing formed a very small part of its portfolio at around Rs200-250 crore, down from Rs250-300 crore at the end of March 2009.

“Earlier, we used to finance many movies. But now we are in a consolidation phase. We are reviewing the financials and will want to see how things move,” said Viney Kumar, executive director, IDBI Bank.

“IDBI Bank might have decided to slow down in film financing because they just do not want to focus on only volumes, they want profitability as well,” said Chaitra Bhat, banking analyst, LKP Securities.

The Export-Import Bank of India, or Exim Bank, which had financed blockbusters like Veer Zaara, Dhoom and Dhoom-2, has also curtailed its exposure to this business. The bank, which finances films with the objective of boosting export earnings — films which promote India as a country and its trade — currently has a film financing portfolio of less than Rs200 crore.

“Exim Bank has been given a mandate by the government for financing various export-oriented businesses. We look at opportunities in the film business and lend to filmmakers as per our set parameters,” said TCA Ranganathan, chairman and managing director, Exim Bank.

Bank loans for making films are typically for 1-2 years. The interest rate charged is about 15% per annum — around 2% higher than on other loans — and the repayment period is up to 18 months.

But why are the banks shying away from films?

IDBI Bank’s Kumar cites a paradigm shift in distribution of movies. “Earlier, there was a system of minimum guarantee under which the producer used to start discharging the liability to the lender (bank) as the distributor used to give a minimum guarantee payment to the producer. In such a scenario, the loan given by the lender would have got repaid irrespective of the movie’s performance at the box office. Now the system of minimum guarantee is not there.”

Bobby Bedi, managing director, Kaleidoscope Entertainment Pvt Ltd, also agrees that the way films are made and distributed has changed, impacting the involvement of banks. “I’d say it’s a mixed bag when it comes to film funding from banks. IDBI Bank certainly has reduced its exposure to film financing. I believe they have had some bad experience and hence the management’s decision to relook at funding filmmakers. Exim has been very selective in its approach and continues with the philosophy of funding film projects with global appeal and potential to be exported out of India. Having said that, there are a few others, like Union Bank, which are keen on getting into this space,” said Bedi.

The film fraternity feels IDBI Bank lost money because it did not stick to set structures. “They did not follow the structures and hence lost money. As a result, the management has lost confidence in the business and hence wants to stay away,” said a film producer, requesting not to be identified.

Bankers bring up yet other issues.

“Both filmmakers and bankers have difficulty in predicting the success of movies,” said Karan Ahluwalia, executive vice-president and country head (media, entertainment, luxury and sports banking group), Yes Bank. “From a banking perspective, the fragmented nature of production houses needs to be addressed since a credible track record, sound balance sheet and good corporate governance are key enablers of organised funding as well as other innovative financing products.”

Yes Bank had financed Break Ke Baad and a few other movies last fiscal.

Industry experts, though, rule out any long-term impact of banks curtailing their exposure to films.

“The quantum of bank loan in movie financing was never very high. It was just one source of finance. There are many corporate, which are into film financing, and they will continue to fund films,” said Rajesh Jain, executive director and head of media and entertainment, KPMG (India).

Kaleidoscope’s Bedi pegs the proportion of bank funding of films at 15-20%. “The balance is still sourced from the private/ individual investors. Of late, we have seen participation from the corporate sector as well as film-focused funds, besides other avenues like studios including Fox-Star and the like,” he said.

On steps being taken by the film fraternity to encourage bank participation, Bedi said banks need some extent of handholding when it comes to film financing. “There are certain aspects about film financing that need be understood clearly and the industry body (Ficci Frames) is looking at taking some initiatives in that direction. We want to rebuild their confidence and bring them back into funding film projects,” he said.

Bedi, former chairman and member of the entertainment committee at Ficci Frames, said the industry body is looking to hold a meeting with top officials of leading banks sometime soon to discuss the subject and work out a solution.

My colleague Neelasri Barman is the lead writer of this story.

European leader RTL Group and India's Reliance Broadcast sign television JV

A leading European entertainment network (part of Bertelsmann AG) RTL Group has joined hands with Anil Dhirubhai Ambani Group (ADAG) promoted Reliance Broadcast Network Ltd (RBNL) for a joint venture to launch thematic television channels in India.

RBNL (among India’s youngest media conglomerates) through its subsidiaries will form a limited liability company (LLC) with RTL Group and will together act as shareholders with an equal equity interest (50:50) in the joint venture. This development marks RTL’s foray into the Asian TV market and is RBNL's second international partnership after CBS Studios International.

Tarun Katial, CEO, RBNL said the joint venture brings the European leader in to the Indian market and that it will be at the core of creating a revolution in the Indian English entertainment space.

"We are committed to offering audiences unprecedented international television content, and RTL Group’s, extensive library and lineage compliment the partnership perfectly. The synergies, values and visions that both Companies share, will allow this joint venture to offer value to audiences and marketers alike,” said Katial.

The partnership will also give the JV access to RTL Group’s content production arm FremantleMedia’s content.

Refraining from divulging precise financial details, RBNL officials said that the initial scope of investment in the JV will be for two English-speaking thematic TV channels. One will be a reality channel with international content, mainly from RTL Group’s production arm FremantleMedia, and the second one will primarily target male viewers with action-oriented content," said the company spokesperson.

Andreas Rudas, executive vice president - regional operations and business development (Central and Eastern Europe) for RTL Group, said, the company believes strongly in the Indian market. "It's a market with a young population which loves TV and impressive potential for further growth. We are thrilled to be here with Reliance Broadcast for our first broadcasting venture in Asia,” said Rudas.

RTL Group With a market cap $15.5 billion, has a portfolio of 40 television channels and 33 radio stations in 10 countries. With RTL owning Fremantle, it is also one of the world’s leading producers of television content such as talent and game shows, drama, daily soaps and telenovelas, including Idols, Americas Got Talent, The X Factor, Good Times - Bad Times and Family Fortune, The Apprentice.

RBNL brings to the JV significant muscle in sales and marketing along with key understanding of the local market and consumer dynamics. It's strong robust distribution network will also allow for optimising content besides its ability to also leverage the Reliance Group media assets across mobile, online, multiplexes and gaming. As for RTL, it brings in a rich experience in the television broadcasting business, strong depth in content library with high quality formats, production and promotion expertise.

Key financial highlights of RBNL:

Consolidated – accounting period ended March 31, 2011

- Total revenue of Rs. 141 crore

Standalone Key Performance - quarter ended March 31, 2011 vs. quarter ended March 31, 2010

- RBNL recorded revenues of Rs. 71 Cr, up by 30%

- Radio Operations records revenue of Rs. 47 Cr up by 25%

- Radio remains EBITDA positive at Rs. 9 Cr, growth of 176%

- Radio inventory utilisation growth of 20%

- Intellectual Property business revenues grew by a remarkable 240% to Rs. 15 Cr on the back of 8 properties

- OOH business posted a robust 15% growth sales performance driven by innovation and marquee properties

Wednesday 25 May 2011

Indian Hotels Co says US operations eating into profits

This story first appeared in DNA Money edition on Wednesday May 25, 2011.

The Indian Hotels Co Ltd (IHCL), the Tata group hospitality company, finally seems to have come in terms with the fact that its US operations are eating up profits generated in the home country.

Anil P Goel, executive director - finance, IHCL, said while there has been a growth in the company’s topline, the management is concerned about some pockets in the overseas operations. “We are very much concerned about our US operations. The business there is still under pressure and is actually denting the overall profitability at the consolidated level,” said Goel without sharing details on the extent of impact on profitability.

IHCL has three hotels in the US — Taj Campton Place in San Francisco, Taj Boston and The Pierre in New York. While the San Francisco and Boston properties are owned by the company, the New York hotel is on a long lease.

Goel said the management is doing everything that needs to be done to turn around the US operations. “It will have to be done in a timebound manner. The idea is to make sure that the high-quality assets being acquired over the last few years start contributing towards the overall profitability,” he said.

In another development, IHCL has decided to increase its stake in one of the associate companies — Piem Hotels Ltd — which owns the Vivanta by Taj President in Mumbai among other properties in the country. The management will invest Rs51 crore to increase its stake to over 50% from the current 42.6% in Piem.The additional stake in Piem will be acquired by IHCL directly or through an investment arm. Post acquisition, Piem will become an IHCL subsidiary.

During the current fiscal, IHCL will add close to 2,143 guestrooms to its portfolio of 12,795 rooms across 107 hotels globally. The additions will be spread across 16 new hotels to be opened between IHCL and its subsidiaries.

For the fiscal 2011, the company expects to make capital expenditure of around `300 crore, of which Rs150 crore has been already committed. IHCL has also retired debt of Rs600 crore in March 2011 and currently has Rs1,700 crore in debt on a standalone basis and Rs3,600 crore on a consolidated basis. Its current debt-to-equity ratio is 0.7:1.

On a standalone basis, for the fourth quarter of the fiscal 2011, the hotel company reported 57% increase in net profit at `93.93 crore from Rs59.91 crore in the same quarter of the previous fiscal. However, on a full-year basis, the company reported a decline in net profit from Rs153.10 crore last year to Rs141.25 crore in fiscal 2011.

Tuesday 24 May 2011

Mumbai five-star hotels reeled under pressure in March

This story first appeared in DNA Money edition on Tuesday May 24, 2011.

Five-star hotels operating in the Indian commercial capital – Mumbai – have witnessed pressure on business during March 2011 as compared to the same period last year. A business performance data compiled by CRISIL Research indicated a southward trend in revenue per available room (RevPAR) for hotels in South Mumbai while north Mumbai hotels managed a very marginal increase despite decline in average room rates (ARRs). In fact, Mumbai and Agra were the only hospitality markets among other cities viz. Delhi, Bangalore, Goa, Chennai, Kolkata and Jaipur that experienced decline in ARRs.

“The south Mumbai hospitality market witnessed a decline from last year’s occupancy levels resulting into a downward pressure on ARRs due to competition, which lead to RevPARs declining by 12% on a year-on-year (y-o-y) basis. However, despite an increase in occupancy levels, north Mumbai saw downward pressure on ARRs, which declined by 5% (y-o-y), due to additional inventory and competitive business scenario,” said Ajay Dsouza, head of research, CRISIL Research. The business performance data compiled by CRISIL pertains to five-star and five-star deluxe hotels only.

Occupancy levels in south Mumbai hotels declined from 70% in March 2010 to 65% in March 2011, while the north Mumbai hospitality market witnessed an increase in occupancy from 64% in March 2010 to 68% in March 2011. “Though south Mumbai witnessed a decline in occupancy levels, it is most likely a temporary dip rather than a signal of declining demand,” said Dsouza.

The average room rate in both south and north Mumbai markets was down by 5% from Rs 11,050 to Rs 10,508 in March 2011 and Rs 8,932 in March 2010 to Rs 8,511 in March 2011 respectively. The decline in room rates significantly impacted revenue per available room (RevPAR) for south Mumbai hotels in particular by 12% - down from Rs 7,715 to Rs 6,805 in March 2011.

Despite decrease in ARRs, hotels in north Mumbai saw a marginal increase in RevPAR by 1% from Rs 5,716 in March 2010 to Rs 5,787 March 2011 mainly owing to increased occupancy levels. RevPAR is total room revenues divided by total room inventory of a hotel — irrespective of the number of rooms occupied. It shows how much the whole asset is actually earning.

Officials from Taj and Oberoi groups with very significant hotel room inventory in south were not available for comment. A detailed questionnaire sent to representatives of both the companies remained unanswered at the time of going to print. However, requesting anonymity, a senior official from one of the groups said business has progressed well and hotels did registere growth in the said period though it wasn't very significant.

“The south Mumbai market saw new room supply as Taj's palace wing and The Oberoi got re-introduced at various stages in 2010. While there was initial pressure, new inventory has got absorbed and rooms rates have stabilised. I'd say a decent growth was registered in March 2011 vis-a-vis same period last year,” said the official.

On April and May months till date, the official said that the new fiscal has started on a very positive note. “We see the momentum continuing in the coming months except for the monsoons which traditionally is a lean season. However, meetings / conferences and weddings will make it up to a large extent,” he said.

Echoing the sentiments were hoteliers in north Mumbai. Rajiv Kaul, president of The Leela Palaces, Hotels & Resorts, said, “Occupancies are certainly holding up and we are seeing 10-15% improvement in business on a year-on-year basis. The situation is very much true for all our operational hotels in the country.”

On the outlook going forward, industry experts are of the opinion that hotels in most destinations have managed to arrest the downward trend in ARRs seen over the last couple of years and some destinations have even seen a substantial increase. “Overall most destinations are likely to continue to see improved demand over last year. While there will be a decline in occupany and ARRs in coming months, it will be more due to seasonal reasons (end of the tourist season). Having said that, increasing costs and competition will place pressure on profitability,” Dsouza cautioned.

Additional Reference Points:

- Driven by increase in foreign tourist arrivals (FTAs), leisure destinations such as Jaipur, Goa, and Agra saw sharp increases in RevPARs (between 20-30%), driven largely by an increase in occupancy levels

- Amongst business destinations, Kolkata and Chennai saw sharp improvements in occupancy levels, boosting RevPARs by 27% and 23% respectively

- Delhi saw a sharp increase in occupancy from 72 to 79%, while ARR growth was relatively muted at around 3%. Driven by the increase in occupancy, RevPAR in Delhi increased by 14% on a year-on-year basis

Hotel Leela set to raise Rs 1,000 crore


Hotel Leelaventure Ltd (HLL) will raise to the tune of Rs 1,000 crore. The company board met on Monday (May 23, 2011) to review the progress of equity raising plans. Approval from shareholders will be sought in the coming weeks for this fund raising exercise.

While company officials are tight-lipped, a senior management personnel had earlier stated that the company is looking to raise money by issuing fresh shares of around 14.95% to 'prospective investors' to help cut debt and lower interest costs. In this regard, the company management is believed to have initiated discussion with top global private equity firms operating in India. Industry sources also said that names like Blackstone, KKR, Carlyle and TPG are among the leading PE players being spoken to for the potential capital infusion.

The luxury hotel operator also announced its results for FY'11 wherein its earning before interest, tax, depreciation and amortisation (ebitda) increased by 19% from Rs 153.45 crore last year to Rs 182.63 crore in 2010-11. However, owing to higher interest burden, its consolidated net profit declined 7.84% to Rs 37.84 crores in FY'11 as against Rs 41.02 crore last year. The company's consolidated net sales for the three months period ended March 31, 2011 increased 17.05% at Rs 525.82 crore as against Rs 449.19 crore in the same quarter last fiscal.

Commenting on the performance of the company, CP Krishnan Nair, chairman, Hotel Leelaventure Ltd, said, "With the improved performance of existing hotels and addition of New Delhi hotel, the company's revenue and ebitda is expected to go up by about 45% in the current fiscal."

Vascon forays into industrial and logistics park space with Rs 1,000 crore project


Vascon Engineers Ltd has formed a limited liability company (LLC) to launch its foray into the development of industrial and logistics parks business. The Pune-based BSE-listed engineering, procurement and construction (EPC) company has joined hands with Renaissance Micro Infrastructure & Realty P Ltd for the construction of this project. Spread over 250 acres, the development will come up village Vashere, Bhiwandi extended suburbs of Thane district.

R Vasudevan, managing director, Vascon Engineers Ltd, said, this is the first time we have got into developing a project of this nature through V R LLC. “The model being followed here is based on the high volume and low cost approach. With a total area of 16 million sq. ft. this Rs 1,000 crore project will be completed in the next five years. In terms of realisation, on a Rs 250 crore a year basis, we are expecting a profit after tax (PAT) of 7-8% annually,” he said.

Vasudevan is also of the opinion that this development will pave way for similar opportunities across the country given the dire need of industrial and logistics space in India. “The focus is on adding bandwidth to the portfolio and projects like this have great potential in the company. Besides, this being a low-cost model can very well be replicated in different locations across the country,” he said.

In another development, Vascon has sold its first hospitality project in Goa operating under the banner Vista do Rio. The 41-room apartment hotels was being operated and managed by Vascon. Elucidating the reasons, Vasudevan said, despite being located strategically the property wasn’t operating to its optimum level and hence the decision to sell. “It has been bought out by a Shimla-based hotelier for Rs 15 crore. The sale proceeds will be used to fund our real estate developments in the country.

On the real estate front, Vascon is looking to launch eight residential development projects in this financial year. These projects will add 4 million sq ft to the company’s overall development (total area under construction) of 6.6 million sq. ft. Of the 4msf, around 1.5msf is likely to get completed in this fiscal.

Analysts tracking Vascon are of the opinion that the scheduled launches by the company will keep the real estate activity / momentum on and complement their EPC business. “Considering their outlay for the current fiscal, we feel the company should be able to maintain 20-25% overall growth in the top line,” said Dipesh Sohani, research analyst with MF Global.

However, there are some concerns expressed as well especially on the real estate business. “The real estate sector in general is facing significant challenges. Companies are faltering on execution and projects are getting delayed. This apart increasing interest rates are impacting residential sales significantly. So we’ll have to see how the management is able to deal with these challenges going forward,” said an analyst requesting not to be quoted citing media policy.

Vasudevan however, is confident that their projects will not face execution problems. “Most of our projects are in markets where there is very genuine demand for residential housing. Besides, these units are priced very attractively in the Rs 3,200 to Rs 3,900 bracket. The projects will also be tweaked as per the market response during the development stages thereby minimising any potential impact,” he said.

Tuesday 17 May 2011

Yash Birla buys out partner in spa business, plots expansion

This story first appeared in DNA Money edition on Tuesday, May 17, 2011.

The Yash Birla Group (YBG) has acquired another 48% stake in its health and wellness business venture — Birla Kerala Vaidyashala (BKV). The stake was bought from its joint venture partner, Kurup family, which is now left with 1% in the entity while the rest is with YBG.

N Venkat, CEO & MD, Birla Wellness, said that the group wanted full control and run the show itself hence the move to acquire JV partner’s stake. “It is a cashless deal wherein some of the assets in Kerala have been transferred to the joint venture partner in lieu of their 48% stake,” said Venkat.

Set up in 2008, BKV operates around 40 ayurvedic spa centres across key cities in India. A privately held company with an annual turnover of around `10 crore, BKV has largely focused on domestic presence in the last three years. However now that YBG has assumed full control over the business, the management is looking to take the BKV brand overseas and will soon launch ayurvedic medspa centres in UAE, Gulf region, Southeast Asia.

“We will start with our own centre and adopt the management franchise strategy for expanding presence in the international markets. The overseas centres will be established through a mix of standalone outlets as well as those housed in hotels. Our first centre will be launched in UAE within the next seven months,” said Venkat.

While the initial plan will be to have three to four centres, it will set up close to 20 international centres over the next three years. On the domestic front, YBG will expand the healthcare arm through franchise route taking the brand out of the key Indian metros Mumbai, Chennai, Bangalore & Kerala. In all, the management is looking to have 100 centres across India and international markets.

YBG will tie up with interested parties having 800 to 1,000 sq ft of space, which can go up to 4,000 sq ft depending on the demand to set up franchisees. “Assuming that the real estate will be on long-term lease basis, the franchisee partner will have to invest anything between Rs7 lakh and Rs15 lakh for a centre. Each centre should take 18 to 24 months to break even,” said Venkat.

The Rs 3,000 crore YBG has presence in sectors including auto and engineering, textiles and chemicals and, power and electricals, wellness and lifestyle, education and IT. It has nine listed entities.

Monday 16 May 2011

Hotel Leelaventure board will meet to discuss fundraising

This story first apeared in DNA Money edition on Monday May 16, 2011.

Captain CP Krishnan Nair’s Hotel Leelaventure board is slated to meet next Monday to consider plans to raise funds, as the hotel chain manoeuvres to pare debt and keep at bay its significant stakeholder ITC Ltd.

This meeting is significant in the backdrop of captain Nair’s recent statement that Mukesh Ambani, chairman and managing director of Reliance Industries, will come to his rescue if ever ITC made a hostile takeover bid. He was reacting to a query posed by a media person at the time of the launch of his brand new five star luxury hotel in Chanakyapuri, New Delhi.

Mukesh Ambani is yet to react to this, however, Captain Nair is confident that the old ties he enjoyed with late Dhirubhai Ambani will help.

In a recent interview, Captain Nair has alluded to “two white knights.” Hotel Leelaventure is currently scouting for private equity investors to ensure necessary capital infusion in the company.

In fact, the company senior management in the past had announced their plans to raise money through private equity by way of issuing fresh equity to the tune of 14.5%. With the said exercise, Hotel Leelaventure is likely to raise in excess of Rs 600 crore. The money thus raised will be used largely to retire a portion of debt on the hotel chain’s books, which is about Rs 3,800 crore. The hotel chain has also decided to liquidate some of its non-core assets and use strategic land banks in Bangalore, Hyderabad and Pune for luxury residential projects. This approach, the management feels, will help them raise another Rs 950-odd crore, taking the overall fund raising to over Rs 1,500 crore.

On 19 April, Hotel Leelaventure increased its borrowing limits from Rs 4,000 crore to Rs 5,000 crore.

The promoters are also looking to shore up their stake to 60% from 54.61%. Of the overall promoter holding, approximately 24% (9.2 crore equity shares) has been pledged as of March 31, 2011.

Recently Leela Lace Software Solution, one of the promoter group companies, has mopped up Hotel Leelaventure’s 13.23 lakh equity shares from the open market for Rs 5.5 crore, increasing its stake to 4.72% (addition of 0.34% stake) at an average price of Rs 41.70 per share.

The company has been tightlipped about their fund raising plans. But industry sources said the management is likely to take the qualified institutional placement route for fund infusion.

Saturday 14 May 2011

Delta Corp takes control of distressed Daman Hospitality

An edited version of this story first appeared in DNA Money edition on Saturday May 14, 2011.

Delta Corp has acquired a controlling stake in Daman Hospitality Pvt Ltd (DHPL), which is setting up a five-star deluxe hotel in the Union Territory (UT) of Daman near the west coast in Maharashtra. The BSE-listed company (Delta Corp) paid Rs 50 crore to acquire 51% in DHPL which is an Indian affiliate of New York-listed gaming, entertainment and hospitality company Thunderbird Resorts Inc. The hotel is to be branded and managed by Thunderbird Resorts once operational by 2011 end.

Industry sources said the acquistion is very likely a distress deal considering DHPL has been struggling to get funding for project completion. With considerable portion of the work completely already last year, the hotel was to start receiving guests in September 2010. However, the opening got delayed and what's further intersting is that, the DHPL management had already hired all the manpower required for running the property - most of them have been sitting idle for almost a year now.   

Officials from both Delta and Daman Hospitality were not available for a comment. Queries emailed to Thunderbird official did not elicit a response. In a company notification to the exchange, Delta Corp, said, 'Construction of the hotel is substantially completed and Delta Corp will further infuse Rs 40 crore to complete the project. The Daman hotel will be ready in another six to eight months and will also have a 60,000 sq. ft. casino which will be set up and operated by a subsidiary company. The company believes that hospitality business is synergistic to with its gaming business and hence will continue to in the hospitality sector with a view to maximise the gaming experience'.

Now that Delta Corp has come into picture, the Thunderbird management in its statement said that the hotel construction shall resume immediately and that completion is anticipated in phases with a full opening in late 2011.

Featuring 176 rooms, the hotel boasts of 30,000 sq ft of indoor events and 70,000 sq ft of leisure are including outdoor pools and other entrtainment zones, a spa spread across 5,000 sq ft in addition to 8,000 sq ft of hi-end shopping arcade.

Post acquisition by Delta Corp, Thunderbird and its original Indian partners will own 49% and Thunderbird will continue to operate the hotel with a management contract.

DHPL at the time of inception was an equal joint venture between Thunderbird and its Indian partner K P Group promoted by Ketan Patel, son of former Daman and Diu Congress MP Dahya Patel. Towards end of 2009, Thunderbird was reportedly in discussion with Madison India Real Estate Fund to riase funds for the resort. It couldn't be independently confirmed whether the placement did happen, however an industry source said that the promoters did eventually dilute stake in the venture to raise funds for the construction of the resort.

Pegged as India's largest gaming and hospitality company, Delta Corp, is promoted by Jayadev Mody (husband of corporate lawyer Zia Mody of AZB Partners). Mody with three other entities namely Aryanish Finance and Investment Pvt Ltd (holding equity shares in capacity of trustees for Aarti J Mody Trust), Bayside Property Developers Pvt Ltd (holding equity shares in capacity of trustees for Aditi J Mody Trust) and Delta Real Estate Consultancy Pvt Ltd (holding equity shares in capacity of trustees for Anjali J Mody Trust) hold 44.18% in Delta Corp. Billionaire investor Rakesh Jhunjhunwala with wife Rekha Jhunjhunwala are also stake owners in the company.

Acquisition of DHPL is a strategic to Delta's Gaming and hospitality foray thereby enhancing its presence and move towards a pan-India imprint. Delta had recently acquired The M V Horseshoe Casino from Harrah's Corp Inc (Caesers Palace, Las Vegas) which is expected to arrive in India by end of June 2011. This 70,000 sq ft floating facility will add another 1,500 gaming positions to the group's existing 725 gaming position.

Tata Housing with Arvind Ltd to develope 134 acre integrated township in Ahmedabad


This story first appeared in DNA Money edition on Saturday May 14, 2011.

Tata Housing and Arvind Ltd have entered into a strategic partnership to develop an integrated township project spread over 134 acres near Ahmedabad. The two have floated an equal (50:50) joint venture for this project which will have a built up area of more than 9 million square feet (msf), located on the western outskirts of Ahmedabad. The township will include residential, commercial and retail spaces apart from a hospital, a school and other civic amenities.

Brotin Banerjee, MD & CEO of Tata Housing Development Co Ltd, said, this JV is part of our long-term strategy of establishing presence in the emergent tier I and tier II cities. “This partnership will help us tap onto a very important Gujarat market,” he said without divulging information on the JV company and related financial details.

Elucidating the arrangement with Tata Housing, senior officials from Arvind Ltd said that the land valued at Rs 250 crore has been being transfered to the joint venture company and that the company will receive immediate payments Rs 125 crore being 50% partner in the project. The project, due for completion in 2012, is expected to generate revenue of Rs 2,000 crore.

Jayesh Shah, chief financial officer, Arvind Ltd, said, “We would get around Rs 125 crore from the land sale in the next six to eight months time, within which the land would be transferred. We plan to start construction in three to four months time. The joint venture company is looking at a couple of thousand crore worth of revenues, out of which around Rs 500 crore to Rs 700 crore could come to us."

While media reports stated the township was valued at Rs 1,250 crore, Tata Housing officials said that a market study is still under way hence exact value of the project cannot be arrived at at this stage. On the payments to be made to Arvind, THDC officials said it will be made in various stages after making some adjustments because the JV partner will also be sharing some proportion of the development / construction cost.

According to a Reuters report Arvind Ltd is looking to liquidate Rs 800 to Rs 900 crore worth of land over the next 3 years, including the Rs 250 crore it expects from the JV. “Currently we are focussing on the land bank that can be converted into an earning asset,” Shah said.

In another development, Tata Housing has launched a new residential project in Gurgaon called Primanti. With this premium luxury housing complex the realtor will further expand its presence in Delhi NCR region. Spread across 36 acres, the development will offer 102 villas, 75 executive floors, 89 executive apartments and 828 tower residences.

(Amritha Pillay contributed to this story in DNA Money)

Nine months in hand, Tata Capital mops up 80% of $1 billion funds target

This story first appeared in DNA Money edition on Thursday May 12, 2011.

Tata Capital has announced the first close at $800 million for a family of five private equity funds announced in August last year.Most private equity firms do fund-raising in stages, typically with three or four closures, if the corpus is huge. Beating the trend, however, Tata Capital has raised 80% of its targeted $1 billion corpus — through a growth fund, an opportunities fund, a special situations fund, an innovation fund and a healthcare fund — in just six months of hitting the street and expects to make a final close well within the targeted deadline of December this year.
Praveen P Kadle, MD & CEO, Tata Capital

“The overall timeframe for closing the fund-raising exercise was 18 months and nine months was sort of a half-way point we had internally targeted as the date for first close. It so happened that $800 million was the figure as of March 31, 2011,” Praveen P Kadle, managing director and CEO, Tata Capital Ltd said.

How did the company manage this despite the difficult fund-raising environment? “In retrospect, we can say now that it was a good decision to take the non-conventional route to raising the funds. Because, when we’d started the exercise, the market was already cluttered with a host of existing and new private equity firms which had set out to raise money for their respective funds. Most of these funds went to the traditional US and European investors and if we’d taken the same approach, we’d have been just another fund in the queue,” said Kadle.

Of the overall corpus, the domestic component of $220 million, or 35% of the overall corpus, has been raised from banks and other financial institutions and through promoter equity (around 15%). The balance $580 million, or 65% of the overall corpus, has been raised from investors in Japan, South East Asia, Europe and Asia Pacific. In fact, close to 40% of the foreign component has been raised from six or seven entities in the Japanese market.

On end use of the funds, Kadle said the company will look to invest in a mix of Tata and non-Tata companies. “We are not really being very adventurous by getting into completely unrelated areas. We have chosen the investment profile of companies which are either raw material suppliers or customers or service providers to the Tata Group companies.”

Working within the Tata ecosystem will ensure that a significant proportion of the investment proposals will be proprietary in nature and not from investment bankers. This, according to Kadle, makes the valuation exercise more advantageous, focused and realistic for the company.

On the deployment side, Tata Capital is taking the stage (early, growth, expansion and special situations) and sector agnostic route (barring real estate and infrastructure, for which group company Tata Realty and infrastructure is raising a separate fund). Tata Capital has already made six investments, totaling $150 million, for its family of funds. The funds have gone into companies operating in sectors like engineering (11%), auto parts (12%), IT & ITES (21%), Healthcare (8%) and Consumer (48%).

Over the life of the current funds, the company plans to make 40 investments —- this means it will make around 34 more investments in the next three years or so. Kadle said the company has an advantage over pure-play private equity firms as it invests in group entities or entities related to them and is therefore able to sniff exit options better.

The expected return on equity is around 18-19%, said Kadle. “While I would not like to put a number to return on equity, all I can say at this stage is that early stage investments are very likely to give us much higher returns provided various other parameters are met with at the time of making the investment. While in contractual terms the investment horizon is around 7-8 years, it will be our endeavour to try and give our limited partners an early return of their capital.”

Tuesday 10 May 2011

Global online distribution just got easier for independent labels, music groups

This story first appeared in DNA Money edition on Tuesday May 10, 2011.

Indian independent record labels and artists facing significant challenges with online distribution of their content overseas have a big reason to rejoice. A new service in the offing is all set to revolutionise monetising opportunities for independent content owners allowing them to sell globally through over 600 online retailers including the likes of iTunes, Amazon etc.

That’s not all. The content owner gets to keep a significant share of the selling price of the song/album unlike the mobile distribution (download) space where the network operator (mobile company) takes the giant’s share. Facilitating this service in India is Sony Music Entertainment India in partnership with Independent Online Distribution Alliance (IODA).

Shridhar Subramaniam, president-India and Middle East, Sony said, “This platform will offer a whole new digital landscape to access a seamless distribution network across audio and video digital retailers. The content owner gets to keep a significant percentage of the sales translating into earnings for independent artists, which was not possible earlier.”

The process basically involves independent content owners to fill up an online application with IODA (www.iodalliance.com) which is then scrutinised by Sony Music officials across various parameters. Once short listed, the content owner is required to submit sound tracks that are then processed by Sony to meet online download formats and quality standards before being hosted on the web. The distribution network, Sony said, includes all major services like iTunes, Amazon, Spotify, Netflix, Unbox, CinemaNow and mobile carriers such as Verizon Wireless, Sprint and Vodafone.

While exact revenue sharing ratios differ from content to content, Subramaniam said content owner will get anywhere between 45% to 50% of the gross download cost. “For instance, if iTunes is selling a soundtrack for 99 cents, it will keep 30 cents. Sony-IODA’s share will be 20% of the remaining 69 cents while the content owner keeps the rest,” he said.

Large music companies operating in India, such as Universal, Saregama and T-Series, generally have their own mechanism (in the form of Tunecore, The Orchard, Hungama.com, respectively) to monetise online distribution of music overseas. However, the independent content owner had very limited avenues to monetise the intellectual property rights (IPR). And with no backing from big record labels, these creative professionals are left with not many options to effectively capitalise the legitimate online download market.

Neeraj Roy’s Hungama.com had initiated a similar model (for independent artists) through its www.artistaloud.com platform two years ago. The management claims their new vertical is working well but refrained from sharing any statistical data on downloads and related earnings. Industry experts, however, said their business model still requires a lot of fine-tuning.

As for competition in the form of Sony-IODA, Soumini Sridhara Paul, general manager, ArtistAloud.com, said, “We never expected to be the only player in the market. Now that they are entering the space, we’ll re-strategise our approach to business, exercise more caution in dealing with the independent content owners and sell innovatively.”

Kanwal Kohli, founder of the two year old independent label Indya Records, feels this initiative by Sony-IODA is a very timely platform especially for music professionals and entrepreneurs like him given the significance of online downloads and revenue generation opportunity it offers.

“Legitimate online downloads is still nascent in India, but it’s a huge phenomenon globally. This (Sony-IODA) platform will play a crucial role by helping independent content owners make decent money from their IPR which otherwise was getting downloaded free or was falling prey to piracy,” Kohli said.

Kohli’s Indya Records along with another independent label Frankfinn Music are among the first few to have already registered with Sony-IODA for online distribution.

Industry experts feel that though service providers like iTunes allow independent content owners to directly upload their IPR for legitimate downloads, they don’t offer flexibility, real time monitoring, control on distribution and marketing and promotional support. “This is where the Sony-IODA platform has an upper-hand,” said a senior official from one of India’s largest music companies.

To elucidate the point, the Sony-IODA platform allows creating an online dashboard for the independent content owners enabling them to access real-time download sales data of their music and videos globally. The platform allows independent content owners to control the distribution by choosing specific retailers and geographies, option of internet and mobile downloads or a combination thereof.

“Transparency has been addressed very effectively with this platform. Besides, there is no exclusivity arrangement between the two parties so the content owners continue to enjoy full control of their IPR. Content owners get promotional support and the revenue share ratio is also fairly skewed in their favour. The most important of it all is the brand pull Sony Music offers globally which is a huge plus for independent content owners trying to establish a foothold in the market place,” said an industry expert, consulting with a leading digital media company.

The platform has put in place an online promotional system called Promonet to help potential customers / music fans discover and share music from thousands of top independent artists and labels. “It also offers a unique opportunity for artists and labels to connect through over 3,000 blogs, podcasts, internet radio stations, social networking and music websites,” Subramaniam said.

Royal Orchid can use Orchid name for now

This story first appeared in DNA Money edition on Tuesday May 10, 2011.

Bangalore-headquartered Royal Orchid Hotels Ltd (ROHL) has got permission for the use of the name ‘Orchid’ for its immediate hotel launch in Vadodara, Gujarat, from the Bombay high court.

Following Kamat Hotels India Ltd’s (KHIL) interim injunction order last month, ROHL promoters filed an appeal to a division bench of the Bombay high court, which stayed the earlier order of the single judge.

“The division bench has admitted the appeal of Royal Orchid which is now scheduled to come up for hearing in July,” Fredun De Vitre, senior advocate, appearing for Royal Orchid Hotels, said.

Meantime , ROHL has been allowed to open Vadodara hotel under the Royal Orchid banner. Chender K Baljee, chairman and managing director, ROHL, said, “The partial stay order is a bit of a relief for us. We have 10 hotels in the advanced stages of completion and the first one is opening in Vadodara this month. We requested the court to allow launching this hotel under the Royal Orchid brand which has been agreed up on.”

The Kamat Hotels management however is not perturbed. Vikram Vithal Kamat, executive director, KHIL, said they have sought complete injunction against the use of their trademark and the court has seen merit in their case.

“The permission has been granted on the condition that if the other party loses the appeal, they will refrain from using the term Orchid in any of their future launches including the Vadodara hotel which will have to be rebranded,” he said.

Wednesday 4 May 2011

Minting money by nurturing nature

This story first appeared in DNA Money edition on Thursday May 4, 2011.

Kishore Kulkarni, a resident of central Mumbai suburbs, is planning to take his family on vacation for 10 days. Though quite excited about travelling out of Mumbai, they are concerned about their small balcony garden. “It is too hot outside and without regular watering the plants will not survive for a long duration. I may have to seek assistance from neighbours and keep the plants with them till we return,” Kulkarni said.

Bharat Soni, Director, Go Green Nursery P Ltd
Kulkarni, however, also has another option. One that will not only keep him free of worries but also ensure that his plants are taken care of. “He can avail one of our services called ‘plants on vacation’, wherein the plants will be collected from his residence (at a nominal charge) or he can bring them to our nursery at Panvel and we will ensure the plants are taken good care of while he enjoys holidays with his family,” said Bharat Soni, director, Go Green Nursery. This service from Go Green will cost Kulkarni approximately Rs25 per plant for a week.

Don’t you think it is an interesting service? This private enterprise has an equally interesting story about its existence. It all started eight years ago when Bharat Soni bought a piece of land near Karnala Bird Sanctuary (Panvel) and was thinking of ways to keep it encroachment free. After a lot of brainstorming, Soni figured that the safest way to protect his newly acquired asset was to make it a farmhouse with a variety of plantations.

“I started visiting nurseries to identify plants and related items. In the process, I realised that most nurseries were being operated in an unorganised and unprofessional manner. The plants were in a bad shape, there was no guidance provided by the nursery operators, services were poor, people had to run from one place to another in search of the right gardening equipment/items etc,” Soni said.

Soni’s ground work gave him good insight in the way existing nurseries functioned and the gaps to be bridged. “I realised there was an opportunity and changed my plans eventually in favour of a nursery. Having gathered all the know-how, I launched Go Green Nursery, positioning it as a ‘green concept’ and a one-stop shop for anything and everything one looks for in a facility like this,” he said.

The facility currently houses 1,500 varieties of plants including medicinal, aromatic etc, employs 175 skilled and unskilled people and operates from various locations across Mumbai. Everything from plants/saplings, organic fertiliser, accessories to services related to gardening, horticulturists, plant pathologist and botanist etc can be availed under one roof. Among other specialised services include landscaping, garden consultancy, maintenance and farm management that are undertaken on a turnkey basis across the country.

With an initial investment of Rs 7 lakh odd (including cost of land), the marketing and advertising professional’s business has grown significantly over the years. Go Green Nursery is currently an Rs 25 crore enterprise clocking annual revenues of Rs 4 crore. Individual customers, real estate developers, corporate houses and government organisation are Go Green’s clients.

There were challenges too. “Building this business wouldn’t have been easy if we focused only as a nursery. A lot of hard work, planning and strategising had to be done in the initial years to bring in a host of services in the portfolio thereby broadening the offerings. We widened our bouquet of services and designed them especially to cater to the different set of customers. And, it was only in the fourth year of operation that we started seeing some revenues coming into the business,” said Soni.

Who’s who of the corporate world feature in Go Green’s client list. Among leading names in the realty space include Hiranandani Constructions, K Raheja, Kalpataru, Lokhandwala, Wadhawa Developers, Aamby Valley and Lavasa Corporation. Some of the corporate sector clients include Deepak Fertilisers, Deloitte, ICICI, Mahindra & Mahindra and Reliance. On the hospitality industry front, Taj Group, Marriott’s JW and Renaissance Hotels in Mumbai and InterContinental The Grand are their clients.

Aspects that differentiated Go Green included unique offerings like developed plants that can be used for making instant gardens. “People these days want quick results and do not want to wait for years to see their plants start bearing fruits. We facilitate them by offering 8 to 12 feet developed plants that are ready to be planted. We also specialise in transplantation of old trees. Lavasa is one project where we transplanted a lot of trees and we have had 80% success ratio with it,” said Soni.

For individuals, households and offices, Go Green has chalked out some very special offerings. While ‘dial a mali’ service allows people to call and avail services of a mali (gardener), ‘plants on vacation’ service is for individuals/households going out of city and looking for some one to take care of their plants. ‘Plants on hire’ is another service targeted especially at corporate offices, banks, shopping malls etc.

“The ‘dial a mali’ service is priced in the Rs 700 to Rs 5,000 range, while it is Rs 25 per plant for a week under the ‘plants on vacation’ scheme. The costs associated with plants on hire are anywhere between Rs 60 to Rs 175 per month wherein plants are changed every fortnight,” he said.

Soni has also introduced a new gifting concept called ‘terrariums’ wherein select few plants are placed in a glass bowl which is partially sealed from the top. “These plants do not require regular watering and can stay fresh for months in a controlled environment. We are promoting them as unique gifting items as part of our green concept initiative,” he said.

In a bid to reaching out to the retail customers, in the last one year, Soni has opened outlets in Mumbai and currently has 5-odd stores in high footfall areas like shopping malls, retail hubs and high streets. “We have also launched a green concept mall under the Go Green Mall banner inside shopping malls. For this we have tie-up with Hypercity and are present in their two locations in Mumbai,” he said.

Future plans include expanding the service network to other key metros in the country. “We are currently working out operations and logistics related nuances to extend the service out of Mumbai and take it to cities like Pune and Bangalore,” he said.

Sunday 1 May 2011

‘Even rivals raved about Leela Delhi. That’s why ITC’s buying our shares’

This interview first appeared in DNA Money edition on Monday, April 25, 2011.

Captain CP Krishnan Nair
Nearly 90, Captain CP Krishnan Nair, chairman of Hotel Leelaventure Ltd, has decided to hang his boots and give his sons Vivek and Dinesh the reins of a hotel chain which he built from scratch along with his wife Leela.

Recently, the patriarch of Indian hospitality created a storm when he said Mukesh Ambani, chairman and managing director of Reliance Industries Ltd, will back him if ITC, a stakeholder with a sizeable minority interest, turns hostile and tries to increase its stake. He strongly believes that the old ties he had with the late Dhirubhai Ambani will continue. He is keen to find investors, too.

“Two white knights,” as he says, who will also help pare the hotel’s huge debt. The Nair family is also increasing their stake to 60% from 55%. Excerpts from an interview with Ashish K Tiwari & Satish John:

The Leela in Delhi is your second try in that market. Why took so long?

We had acquired a land parcel from Housing and Urban Development Corporation (Hudco) Delhi, approximately 15 years ago. It was during H D Deve Gowda’s tenure as prime minister of India that the 3-acre plot in the Asian Games Village was acquired to develop a hotel. I thought if a south Indian like Deve Gowda can become the prime minister, then a south Indian like me can also put up a hotel in Delhi. Being the highest bidder at Rs200-odd crore, I got the land parcel in an auction conducted by Hudco Delhi. Being government land, it had a clear title and we were assured that all sanctions / approvals will be given once we have started work on the project. V Suresh was the Hudco chairman then and Ram Jethmalani was Union minister for urban development.

We hired one of the world’s best architecture firms WATG (based in London) who had also created two monumental hotels for us in Bangalore and Goa. They surveyed the land and other historical structures in Delhi. This time around I was fully prepared which was not the case earlier. The site was a very ideal location not too far away from Rajpath and we were quite excited about doing a project there. Within two months we came up with a plan for the hotel and gave it to the Hudco officials. All clarifications were provided to the municipal authorities there. But suddenly, after sometime they came back to us saying we cannot do a hotel there because it was reserved for low-cost housing or something like that. We eventually ended up getting into big trouble with that land parcel.

Today in the context of Jan Lokpal Bill, I can only imagine the kind of torture people would have had to face all these years in this country. The situation is just not compatible to justice and fairplay because of bureaucracy and political play. Can you imagine, people like V Suresh and Ram Jethmalani could wash their hands of it quietly and get away with it too?

So did you get the land parcel from them?

We never got back the land. Instead we got caught in a web of problems and we were attacked from all sides. Because of vested interest of some people in the system, the land acquisition deal was termed as unauthorised and the government decided not to pay us the money and forfeit it instead. I went from pillar to post to sort out the matter but in vain. Our bank accounts were frozen and there was a significant interest expenditure piling up because we had borrowed money in addition to equity.

It was really a terrifying situation. I was surprised that I didn’t get a heart attack. I was left with no option but to comply with whatever I was told. Despite all this, the Hudco officials unnecessarily delayed the matter and dragged it in court for another three years.

Did you finally get the money back with interest?

The irony of the matter is that I am still in the court fighting to get a complete refund. It so appears that they (Hudco) somehow wanted to use the Rs200 crore for themselves and used ‘court sanction’ as an excuse for not paying us back. We eventually had to approach Lal Krishna Advani, who directed the cabinet secretary to issue a directive to Hudco to pay Rs100 crore without any delay. So we did get 50% of the dues which was a great breather at that time. Hudco, however, wasn’t ready to pay us 22% interest (as per the rules and regulations) and decided to appeal the matter in a higher court. As a result the matter is still pending final decision. This entire incident only demonstrates the kind of torment one has to go through fighting bureaucracy in this country.

Despite all the hurdles you were determined to flag off the The Leela brand in Delhi…

The incident only motivated me further to establish presence in Delhi and I was determined to make that a reality. So while I did lose an opportunity then, the very thought of getting a much better location for our Delhi hotel kept me going. So when a few land parcels were being identified and auctioned to meet demand for hotel rooms during the Commonwealth Games, we chose to bid for the Chanakyapuri site. It was an international bid and I told my sons Vivek (vice-chairman and managing director) and Dinesh (joint managing director) that it will be a very competitive process and we must get it at any cost.
We assumed the price will be above Rs600 crore for the 3 acre land parcel. Among some of the competitors in the electronic bidding process included a Dubai sheikh and Ong Beng Seng (the Singaporean businessman). However, we also participated in the enclosed bidding procedure and were the highest bidder for that land parcel at Rs611 crore. The challenge then was to open the hotel well in time for the Commonwealth Games. We did open before the games but only partially and have now launched the property with all the facilities including restaurants and spa.

What has been the response for the new hotel?

It has been mind-boggling especially because of its strategic location in the Diplomatic Enclave. The property is getting rave reviews from patrons across the globe. Really heartening is the fact that the Indian hospitality fraternity including RK Krishna Kumar (Tata Group/Indian Hotels) have lauded our efforts.

In fact, Vikram Oberoi (of Oberoi Hotels) wrote to me saying the hotel is way above the quality standards of any other Indian hotel operating in the country so far. I personally wrote back thanking Vikram for the feedback. It brought back memories of Rai Bahadur Mohan Singh Oberoi, who at one point was very keen on partnering with us when we had put up the Mumbai hotel. We told him that we could certainly look at a marketing tie-up but he was more keen on taking the management so we did not take up the offer.

In fact, my wife Leela has been very clear from day one that the hotel business be run by the family members. That was the reason why we also sent Vivek to Cornell (University in New York) to study hotel management. He was the first Indian to have undergone a proper three-year programme there. Vivek’s wife is equally well-qualified from Cornell and very well understands the hotels business.

Management contracts seem to be the way forward with most domestic and especially international chains entering the Indian market...
We have done a deal in Gurgaon which is a mix of hotel and serviced residences and it has been doing great business from day one. It’s today the most preferred hotel in Gurgaon with almost 100% occupancy despite the highest rates in that category. Management contracts certainly is one way to expand presence/reach but you need the right partner and hence it’s always better to be on your own. As for the asset light strategy adopted by foreign companies, I think they have nothing to loose with that approach. The asset owner is building the hotel, making all the investments, gives management to a foreign brand but if the management company isn’t able to perform well, they can always de-flag the brand.

You have been saying that your ambition is to put up 18 hotels and then retire. What is the status of that goal?

We already have eight luxury hotels in our portfolio including the Chennai hotel that will open in August this year. The only capital city not in the network currently is Kolkata, we are looking for a place and we will be there soon. This will be followed by a second league of hotels in the pilgrim destinations. I think there is great potential for organised hotel companies in these locations. The new additions will now be done by my sons and grand daughters while I will play the advisory role.

Vivek’s two daughters are already in the business wherein the elder one (who also studied at Cornell) is looking after the finance and the younger one (studied at the Culinary Institute of America) is focussing on food and beverages and wines segment of the business. My third grand daughter Samyukta (Dinesh’s daughter) is currently studying at Lausanne in Switzerland and will be spearheading our foray into new pilgrim/business hotels after completing her course. In fact, she has already put up a business plan and has identified Nashik and Ahmedabad as locations for the first few launches.

She wants to call it Leela 1922, the number being my birth year. I am not saying no to her. It’s her concept. She will be back in August and then begin work on the project. These will be three-star hotels with a room rent of Rs4,000 ($100) for a night, will offer clean rooms in a very green environment. Such hotels are the need of the hour and that was the key reason why we thought of introducing the new category in our offerings. I was also wanting to have some environment-friendly hotels under The Leela Gardens brand.

You look very fit for your age…

Every day for one hour I go to our health centre. I feel so fit after that. I also go to the spa every alternate day.

The Delhi hotel, we are told, is your new flagship…

Even my competition has admitted we are far ahead of them. That’s why ITC is buying our shares. Even our Bangalore hotel (a money spinner) is beaten by Delhi. Chennai will be built on the same lines. But Chennai is not a market that is comparable to Delhi. Even before opening the hotel in Delhi there are many delegations which have come and raved about the hotel. The target audience are the foreigners and upscale Delhites.

You said in June you’ll retire.But hoteliers rarely hang up their boots. If you look at PRS ‘Biki’ Oberoi, he’s still going strong...

PRS is 80. I am 89. Rai Bahadur retired when he was 85 years. I am going to be 90 and I think it is time to give the young people the chance to show their mark before our eyes.

I am healthy enough and I can continue. My memory is good and I am very happy and contented that in this lifetime I could see India growing to become a powerful nation.

How did you and Dhirubhai Ambani become friends?

We were both into textiles. He had Vimal and I had a textile firm called Leela Lace. When he came back from Aden, he started a yarn business. He wanted me to buy yarn from him and he had a very affable and friendly demeanour. I said yes to him, provided he (Dhirubhai) ensured that the yarn was of the requisite quality and tensile strength. He used to call me Krishna. He bought the yarn from Kohinoor Mills, a special tensile strength yarn which will not break like nylon does. And I bought from him from day one until we closed our textile unit.

(An attendant interrupts, to say Mrs Leela Krishnan Nair is ready to leave. He looks at the watch, smiles, and says “ten more minutes”. But the interview continues for half-an-hour more.)

You see, Leela and I have planted 2,00,000 trees in the vicinity near the airport. Most of the trees have been uprooted, but still for nostalgia’s sake we go for a drive around the airport to look at the trees and the foliage...

You were talking about Dhirubhai…
He was a dear friend of mine until his end. I used to go everyday to the Breach Candy Hospital. When he first got a stroke, he was admitted to the Jaslok Hospital. The moment I heard, I rushed there. You see, he was a very jovial person, bubbling with energy.

You must have met him before he had a stroke...
He used to call me those days and invite me to Oberoi Hotel. I used to go at times, as it was difficult to leave everything as I stay in the suburbs.
Once President (Hugo) Chavez of Venezuela was to stay in our hotel. Dhirubhai learnt about it and said he wanted to meet him. When the day arrived, Dhirubhai suddenly took ill and didn’t turn up. Instead, he told me to take his place, and sent Mukesh to make a presentation on the Jamnagar refinery. They have got good support from Venezuela.

What is Mukesh’s interest in hotels?
Mukesh went to the rescue ofthe Oberois. Mukesh is blessed with oil & gas, the biggest source of revenue in the world. He is unfettered. If he can develop and ramp up the gas fields, he can supply the whole of India with gas from KG basin. It has inexhaustible gas.

Is ITC thinking there’s an opportunity when father-figures such as you and PRS Oberoi fade into the background they probably can go for the kill?

Yogi (Yogesh Chander) Deveshwar (chairman of ITC) is a very shrewd man.

Have you spoken with him?
We are friends. He was in charge of The Searock Hotel (opposite Taj Land’s End in Bandra, Mumbai) about 25 years ago as its general manager. He came here (to The Leela in Andheri East) and accepted that we had indeed built a fabulous hotel. Out of curiosity, he had come with 8-10 of his colleagues, all heads of departments to inspect our hotel. I was sitting in a corner and he came up to me and sized me up. He is a tall figure and an astute man.

He asked: “Sir, are you the owner?”

“No, I am the housekeeper,” I replied (laughs).

“In that case, I will tell you have put your money in the gutter. You have built it so beautifully, but this will never sell,” Yogi told me.

How did you react?

“Yogi,” — I called him by that name — “You are an employee of ITC.” His boss P M Menon, who was on the board of ITC, was my cousin. “You are doing a good job at Searock. You have managed to make Searock the most happening hotel in this part of town, so I’ll hire you at double the money you earn now to run this hotel.” He walked away (laughs).

Have you checked with him on his interest in your hotel?
I never asked him. I told my people, if ever Yogi Deveshwar comes to our Delhi hotel, treat him with great respect. I am told he stopped his car in front of our Chanakyapuri hotel and looked at it very, very carefully from the outside for 10-15 minutes. He looked at the elephants. He’s an astute man and he’s a businessman. He’s leading a big company. My cousin was the director of Imperial Tobacco, which is now ITC. But the money is being made from cancer. Tobacco business (shakes his head)... Now he’s moving away and is making soaps and other things. That’s the way to do it. He should go for solar energy. Why is he putting money in hotels? If he has got money, he should put money into solar energy. All Indian entrepreneurs should put their money into this. I want Mukesh Ambani to do that. Discover a cheap way to generate solar power.

Mukesh is doing that, we hear...

Mukesh (Ambani) must develop it. He must employ the best technicians from all over the world. One day will come, when we’ll not depend on oil and gas. Nuclear power is not good for us. I was a votary of nuclear power, but today after seeing Japan and its plight, I fear the earth may get crippled if we go ahead with such energy resources.

You were friends with politicians and freedom fighters?
When I was a young boy I fought untouchability, the British. I was a student leader when I was 13. I was a fighter.

Are there any unfinished tasks that you expect your sons to complete?
My sons will bring this group to a higher level. My children will make this group a truly Indian hospitality chain. I am ashamed that all our people are running after Marriott, Sheraton and Hilton. Kempinski was just a tie-up. We foolishly called it Leela Kempinski, on the advise of our marketing people. That was the challenge. I’ll be on my own.

You remain a passionate hotelier. Do you see the same passion in the current generation?
Why not? Both my sons are very passionate. Vivek studied in Cornell. I wanted them to study hotel management in all respects. Vivek bought the first architects for this hotel 27 years ago. They were from Boston. They changed the plans even though the building was already up. They changed everything. Dinesh’s skills are in operations, whereas Vivek is strong in thinking, political liasoning.

How do you perpetuate the...
I have three grand children.

No, we are asking because there are stakeholders such as Yogi Deveshwar’s ITC prowling in the shadows…
We have 55% and we’ll make it 60%. It’s a fact that we carry huge debt on our books. It’s a fact. But the assets we have put in place such as the Rs1,600 crore Chanakyapuri hotel is now worth Rs2,000 crore. Costs have gone up, but we still built one of the most valuable hotel properties in recent times in India. Without batting an eyelid, our competitors will pay at least Rs2,000 crore for that property. So the debt is still manageable. If you tell Sheikh al-Waleed (the Saudi billionaire), he’ll pay Rs3,000 crore.

You’ve had an association with Sheikh al-Waleed?

Al-Waleed has invested in Four Seasons. He was very keen to have a stake in my company. “Krishna, he told me, I want the stake through Four Seasons.” “Sheikh al-Waleed, I told him, it is in my wife’s name. She has put her heart and soul into everything — landscaping, cuisine … even today my wife is very compassionate towards the boys working in the hotel.”

We are lavish when we spend on food for our people. Leela, even today, gets the food from the cafeteria. In the beginning, when we were giving our boys ration rice, my wife intervened and told the chef that when the boys are serving five-star food to guests, they should also have it. The same rice should be served to them and arrange a bada khana (big feast) for the boys and girls every month. They should be treated like the guests at least in a small measure.
(We point to a picture of his with US president Barack Obama.)

This picture of you in deep conversation with the US president, what was that about?

Well I told him, “Mr President, you captured India.”

“Have I? Have I?” Obama replied, looking at a loss. “I mean, you captured the mind of Indians,” I explained.

“When you invoked Mahatma Gandhi, you touched a chord in the heart of all Indians. People have forgotten Gandhi here, you’ve revived him,” I told him.

“You’ve become an Indian,” I told him. “Have I? Have I?” Obama asked.

In the same vein, I told Michelle Obama I have five grandchildren who are Americans. “Where are they in America?” she asked me. I told them two are in Washington. She told me: “Ask them to see me.”

They are very kind people and very informal in their interaction.

I had supported Hillary Clinton. I had told her, Clinton, make sure, that Capt Nair is invited for your inauguration. She didn’t make it because of her miscalculation. In the beginning she ignored Bill Clinton, and only half way through the campaign did she invite him on board. If his services were taken in the beginning they would have easily won.

You spoke about your troubles? Any regrets?
India has to be a land devoid of greed and corruption. We preached Panchsheela. This is the land of Swami Vivekananda and Gautam Buddha. Now look at (Andimuthu Raja (the tainted, jailed former telecom minister), how he has behaved. He did not treat our prime minister with respect, he felt he could do anything. This Anna Hazare should be upper most in everybody’s priority. We must get back the trillions of rupees stolen. We should rebuild India in the next 10 years.

I am a true Indian. Soniaji is an upright woman leading a simple life. Both Rahul and Priyanka are simple kids, well-behaved. Priyanka, if she ever decides to get into politics will fly like Indira Gandhi. Rajiv Gandhi was a good man, he used to stay here (points to the hotel). The last time he went for election campaign, from here he went to Chennai. He put his hands on my shoulder and said: “Sir, we’ll come back victorious.” He was dreaming of a big
victory. I’ll not commit the mistakes I committed in the past. The moment you become a minister or prime minister, forces of greed come and capture them.

The asuras. That should be avoided.

What is the most dear memento in your office?
This (pointing to a crystal) lotus. Priyanka (Gandhi) gave me this lotus with a note. She gave this seven years ago. I have a thousand gold lotuses in Delhi designed by Satish Gupta. I love lotuses. I have ponds for beautiful lotuses in the hotel and even in my house. Priyanka knew about this and send it to me. I was so touched.

This is (points to a figurine) Buddha, which the Dalai Lama gave me. He has stayed here 27 times.

What do you like to be remembered as?

A true Indian host. Let us bring back our ethos back. Let the world say we Indians are a class by themselves. Today, Indians are walking with pride everywhere.