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Saturday 30 June 2012

Mobile is an area Yatra.com is tracking very closely for opportunities: Dhruv Shringi


Dhruv Shringi
Gurgaon-based online travel agency (OTA) Yatra Online P Ltd (Yatra) recently acquired online hotel distribution network Travelguru from Travelocity for an undisclosed sum. With relations spanning over 7,000 hotels Travelguru has a tremendous brand recall in the ‘hotel only’ space. While Yatra has always been synonymous with flights, acquisition of Travelguru will help the company strengthen its position in the OTA segment as hotel providers also apart from flight ticket booking said Dhruv Shringi, CEO, Yatra. In conversation, Shringi shares his plans in the mobile space, overall market sentiments, business and more. Edited excerpts...

Now that Travelguru deal is done, how do you plan to go about the integration process?

We want to keep it (Travelguru.com) fairly independent. There isn’t that much integration we are doing apart from Travelguru becoming the supplier of content to Yatra. I don’t foresee this to be a major integration challenge. The Travelguru business will continue to be run by its existing management viz. Rajesh Jindal and Deepak Mavinkurve who will be leading a team of 150 people.

Which other areas will Yatra now look at for acquisitions?

From an opportunity point of view, there is a lot of stuff happening or beginning to happen on the mobile front. That’s an area we are tracking very closely for interesting opportunities. The advent of smart phones is expected to significantly facilitate mobile travel booking and travel research and trend increasing significantly with newer and affordable handsets getting launched at regular intervals.

Though companies like Via, Cleartrip etc. have tried doing a few things on the mobile platform no one has really been able to do something really cool and differentiated. So we are still on the lookout in that area. While we are working on it organically, we will certainly explore any interesting / exciting opportunity on the mobile front.

Is there a specific sum you have set aside for inorganic growth?

We haven’t really set aside any specific corpus for inorganic expansion. We are actively exploring opportunities and if anything exciting does come up we will evaluate it on a case to case basis.

How was business last year? Do you see the momentum sustainable?

Our overall business in FY’12 grew at slightly over 60% year-on-year (YOY). We are expecting the growth rate to temper a bit considering what is happening in the macro environment at the moment. But we still think that growth would be in the region of mid-to-late 40% based on our internal projections for the current fiscal. While international flight bookings as a segment is growing, holidays and domestic hotels are obvious drivers of the business going forward. We see these segments registering growth in the region of 80-100% over the course of this fiscal.

So you are sensing a slowdown in the travel space?

For the first time in almost seven years, domestic air-traffic was negative last month. This clearly indicates that the overall market sentiment at the moment definitely is negative. Despite the fact that everyone knows what needs to be done from an economic standpoint, it is one of those scenarios where the political will just doesn’t seem to be there. We are looking at a fiscal deficit situation which people very well know how it can be reduced, but the big challenge is whether they have the political will and desire to take necessary measures. Given that things are reaching at such a dire strait now, action is required and I’m hopeful the government will initiate it.

How long do you think will the slowdown last?

I am hoping that by Diwali things should start picking up. If you look at India vis-a-vis rest of the world, things here are not so bad. We are still growing at 5.5% whereas there is absolutely no growth in the rest of the world and some countries are even witnessing negative growth. So we are still in a better position.
I feel, if the government can initiate some action right now (even though a lot of it is still sentimental) we should be able to get back on the path to recovery by the end of this calendar year.

While there are large macro factors, like stuff happening in the European Union (EU) which has a big overhang. It has a major impact on the Indian currency and the fiscal deficit. However, with Prime Minister Manmohan Singh expected to keep the finance ministry I am hoping some reforms to happen soon. There are no fundamental issues which is why I think the opportunity is there.

You are going aggressive on opening franchise outlets in the country with 100-odd stores in this fiscal. Is the number achievable?

The franchising opportunity being offered by us has gained a lot of traction in the market. What is happening is that rental yields are heading southwards thus owners of commercial real estate space are not very keen on giving it out on rent. Besides, people owning a property and having interest in becoming a franchisee are more keen on starting a business. So from a return point of view, this is becoming a very attractive business and that’s the kind of alternatives people are currently looking out in the market.

We are targeting 100 franchise outlets in the current fiscal and I think the number is fairly achievable. While we started that off as a very stretched target, looking at the kind of response in the first quarter of the year, we should be able to get all of them up and running in this fiscal.

What are your views on car rentals and bus ticket bookings being added by various online travel portals?

I see bus ticket bookings as largely a value-add service because the marginal earning per transaction is fairly low. Car rental services however, is a bit more attractive from an overall earnings point of view. It might not turn out be very materialistic in this fiscal (as the focus is on building the hotels proposition), but over the course of next couple of years car rental services will begin to play a meaningful part in the overall business.

Any new fund raising plans?

No. We don’t have any fund raising plans at the moment.

You recently appointed Bollywood actor Salman Khan as brand ambassador for Yatra.com. Does he also have a stake in the company?

Salman is a shareholder in the company with a minority stake. While there is market rumour about him (Salman Khan) owning 5% in the company, I really can’t comment on market speculations.

Wednesday 6 June 2012

On PE St, Warburg’s deal with Future no tide-turn

This story first appeared in DNA Money edition on Wednesday, June 6, 2012.

The deal between Warburg Pincus and Future Capital Holdings is more an exception than sign of an emerging trend on Private Equity Street, say experts.

To be sure, equities have lost a fifth of their value over the past year and valuations look much better.

“But valuation expectations have not softened yet and that is only making things more difficult. It’s a great time to invest, but one also needs to take into consideration that PE firms are fighting their own battle justifying their existence and the current state of economy is not really helping,” said Pankaj Karna, managing director, Maple Capital Advisors.

Gaurav Deepak, managing director, Avendus Capital, also sees the increasing economic uncertainties slowing down growth-oriented private equity deals in infrastructure related sectors. “At the same time, we believe that consumer, healthcare and other non-cyclical sectors will continue to see robust deal closures,” he said.

According to PE investments data compiled by Grant Thornton, in April this year, mergers and acquisitions and PE deals totalled $2.6 billion (99 deals), way below the $8.2 billion (101 deals) logged in April 2011 and $3.1 billion (136 deals) seen in April 2010.

PE deals cut much smaller portions at $0.6 billion (38 deals) in April 2012 compared with $0.8 billion (37 deals) and 0.8 billion (35 deals) in the corresponding period of 2011 and 2010, respectively.

One may continue to see evidence that a sombre global outlook, slowdown in Indian GDP growth, high inflation and elevated deficits has “significantly impacted investor confidence and private equity firms are reassessing/ refocusing on the way they do business,” auditing and consulting firm Deloitte said in a recent report titled ‘PE fueling India’s growth’.

Over a longer term, however, PE deals are seen materialising.

Kalpana Jain, senior director, Deloitte Touche Tohmatsu India said that while there is caution in the market, PE firms have shown great appetite for directing monies into companies that would benefit from the strength of domestic consumption in India and the potential beneficiaries of such an approach by the PE firms will be segments like small retail format stores, hospitality and food and beverage.

“Given that money is needed at core infrastructure, the investing community is of the opinion that although it may take time, investment in backbone sectors such as infrastructure, education, healthcare and renewables will continue to see more traction as government policies streamline investment and exit modalities,” said Jain.

According to sources, what also helped in the case of Future Capital was that it was in the market for almost a year.
In fact, promoter Kishore Biyani had almost negotiated a deal with the Deccan Chronicle Group.

“It was almost concluded but got delayed as Deccan was awaiting funds required to make the acquisition,” said a source.
A number of private equity players, including Baring Private Equity, Bain Capital, CX Partners and L&T Finance were also pursuing the acquisition till about three weeks ago.

“While it was certain that Deccan will acquire Future Capital, other suitors continued to pursue the deal simultaneously. However, when Deccan informed they didn’t have enough funds to conclude the deal, that’s when Warburg Pincus stepped in. Surprisingly, it took them just two weeks to negotiate and close the deal,” said the source.

On Monday, Future Group said it will sell a 40% stake in the non-banking finance company to US-based Warburg Pincus for Rs 425 crore. Warburg’s stake in the entity will rise to 53.67% post an open offer, taking its total deal size to Rs 550-560 crore. Additionally, Warburg will invest Rs 100 crore in Future Capital.

Cable Digitisaton: Chaos is fine, extension of deadline is not

The Cable and Satellite (C&S) fraternity has been working aggressively to meet the government's June 30, 2012 deadline for Phase-1 cable digitisation and compulsory use of set-top boxes (STBs) in the four metros, which is just a three weeks away.

Despite a short timeline for digitisation, the fraternity stressed that it should be met with without fail. While majority of the players foresee a chaos situation in the market place, the consensus is that chaos is still better as cable subscribers will then make time for digitisation.

Recollecting a similar situation that broke out earlier over the 'know your customer' (KYC) deadline for mobile connections, Nagpal said, "The mobile subscribers took it seriously only after their connections were taken off the network. We saw long queues in the following days and weeks for getting the KYC procedure done.

"It is very likely to happen in case of digital cable as well. Customers who do not act before the July 1 deadline should be willing to wait for 5-10 days or more without TV, whatever it takes us to get it to them. That's because if you give them an additional 6 months, you will fall back into a limbo."

Ravi Mansukhani, MD, Incable, Indusind Media & Communications Ltd while pointing to other issues viz. terms of business, selling price of boxes to consumers, price for retailing the channels, overall business plan etc, stressed on the fact that the deadline should be met.

"Who is the biggest loser, if digital addressable system (DAS) does not happen? Who is spending all the money in this entire exercise? We have all ordered 2 million boxes, spent the maximum amount of money. We are sitting on inventory.

"We want to implement DAS effectively and successfully. Now whether the government wants to phase it further or stick to the phase, let them come up with the solution. But that is the bottom line," asserted Mansukhani.

Digitisation will help plug tax losses

The story first appeared in DNA Money edition on Tuesday, June 5, 2012.

Digitisation in the Indian cable and satellite (C&S) sector is set to significantly plug tax losses caused by under-declaration of subscriber numbers by some last-mile cable operators, say industry experts.

According to data presented by Jawahar Goel, former president of Indian Broadcasting Federation (IBF), to the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) in 2008, a meagre 6.8% service tax was being declared by cable operators across cities such as Delhi, Kolkata, Bangalore, Chennai, Hyderabad, Jaipur, Ludhiana and Gurgaon.

The data also showed that Delhi, Kolkata, Bangalore, Chennai and Hyderabad were among the cities that reported highest leakage.

Goel said he is in the process of collecting similar data for the last four years, which will throw light on latest scenario.

Low tax compliance, according to industry sources, is because a certain section of cable operators uses various means to influence the tax implementation authorities and gets away with it.

“The not so influential cable operators, however, bear the brunt as they are being made a scapegoat by the tax authorities to meet their targeted revenues. The authorities also go to the extent of arresting such honest cable operators because they refuse to pay up,” said the source requesting anonymity.

The C&S players also feel that the government’s taxation policies need to be rationalised. The fraternity says that a lot was promised like fiscal incentives, some compensation in terms of taxations, etc, but nothing has really happened.

Harit Nagpal, MD & CEO, Tata Sky and president of DTH Association, said, “We are okay with tax. But over-taxation or multiple-taxation is certainly a problem. The state takes the entertainment tax. The Centre charges the service tax. There is duty on imported set-top boxes. And this is in addition to the licence fee.”

“The DTH and cable operators have become the collector of tax from its subscriber base,” said Dish TV’s Goel, adding, “while there’s multiple taxation for DTH and cable operators, the multiplex industry with a similar business doesn’t pay any service tax.”

Besides multiple taxation, the industry feels charging entertainment and service taxes onfree-to-air (FTA) channels is not appropriate.

Anil Kumar Malhotra, COO - sales & operations, Wire & Wireless India Ltd, said, “In Maharashtra, entertainment tax on cable connection is Rs45 (per subscriber). Add service tax to that and the subscriber is paying approximately Rs160 i.e. around 60% over and above by way of taxation for FTA channels...something that is of essential value to the consumer.”

Echoing the sentiment, Anil Khera, CEO, Videocon Digital DTH Service, said, “There will be a lot of confusion on how much you really collect from a customer.”