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Monday 30 July 2012

FDA plans huge fees, yet drug cos happy

My colleague KV Ramana co-authored this story appearing in DNA Money edition on Monday July 30, 2012.

The US Food & Drug Administration is set to charge up to $100,000, or over Rs50 lakh, for each abbreviated new drug application (Anda) and $35,000, or over Rs17 lakh, for drug master files (licence to make bulk drugs) from zero now.

It’s a good thing, say Indian pharmaceutical companies.

That’s because the money would be used by the FDA to reduce the time taken to approve drugs from the current 27-30 months to just 7-8.

The current timeline costs a lot to drugmakers, say analysts, because it can delay launches and manufacturing plans.

“Basically, the FDA wants to collect $299 million through Anda approvals, facility visits, inspections etc, as that is the sum it spends annually to run the department in the US. And since economic conditions are difficult in the US, it wants to collect the money from the generic manufacturers,” said Manoj Garg, analyst with Edelweiss Securities.

On an average, the FDA approves 1,500 to 2,000 applications every year.

About three quarters of the target amount will be collected from plant visits, inspections etc and the rest by way of approvals.

“So about 25% of $299 million i.e, $75 million, divided by the annual Anda applications, gives a range of $25,000 to $45,000 per application approval charges (from the generic manufacturer) depending on the complexity of the molecule,” Garg calculates.

A spokesperson for Dr Reddy’s said, “As long as it speeds up the process, the fees is not a major issue”.

“The FDA is keen on ramping up its infrastructure by deploying the funds raised through the user fees. If that happens, most of us would be willing to pay the fees in order to take the products to the market earlier. There is an opportunity cost and we don’t mind paying,” a senior official another generic drug major said.

However, analysts are not very confident about the timelines getting reduced immediately. According to them, it would take more time for the systems to set in and the results would be seen only after that.

“While FDA wants to improve on the time taken for approving an ANDA, it will not be able to do it within a year as recruiting the staff, training them enhancing the infrastructure etc will take time. As a result, it is expected that timelines will come down over a period of 4-5 years. The target, it is understood, is to bring down the timelines to 10-12 months from the current 27-30 months,” Garg said.

Dr Reddy’s has filed about 4 Andas in the first quarter of the current financial year and about 73 are pending with the regulator for approval.

“We see this as a positive development as the move is intended to speed up the process of approvals. The FDA has a significant backlog of pending approvals. Also, we feel the fees will act as a deterrent forcing a lot companies to be selective about their filings. This again will hasten the process as lesser filings will also imply quicker approvals,” Glenn Saldanha, chairman and MD of Glenmark, said.

According to him, Glenmark’s US business strategy is based on Anda filings in niche segments like dermatology, hormones, controlled substances and modified release categories.

“We intend to initiate 15-20 products filings each year. We have 38 Andas pending approval with the FDA. Hence, we view any move to speed up the approval process as a positive one. Glenmark has received close to 80 approvals till date. About 38 are pending approval with the FDA,” he said.

Bajaj Ventures' sell-off by September ‘12

Consumer electronics major Bajaj Electricals along with another Bajaj group company Baroda Industries are in the process of divesting their stakes in Bajaj Ventures Ltd. Both Bajaj Electricals and Baroda Industries hold 50% each in Bajaj Ventures

According to industry sources, the existing owners are currently in a fairly advanced stage of negotiations with the potential buyer and are expecting to conclude the transaction in the coming months.

Confirming the development, Shekhar Bajaj, chairman and managing director, Bajaj Electricals Ltd, said, “The deal will see both the entities divest their stakes in favour of the buyer. Discussions are currently on and a sell-off is likely by the end of second quarter this fiscal.”

While the value of investment on Bajaj Electricals’ books, according to industry sources, is around Rs 15 crore the company management is looking at a significantly higher multiple in terms of realisation from the stake sale. Shekhar Bajaj however did not share any information about the valuation expectations from this sale.

Bajaj Ventures was originally christened Black & Decker Bajaj Pvt Ltd, (Black & Decker Bajaj), which was a 50:50 joint venture (JV) with Black & Decker Corporation, United States. The company was instituted in 1993-94 to manufacture and market power tools, household appliances, and related accessories.

After seven years of operations i.e. in fiscal 1999-2000, Black & Decker chose to exit the JV and sold its 50% stake to one of Bajaj group companies (Baroda industries Ltd) post which the company was rechristened Bajaj Ventures Ltd.

While the Black & Decker brand association with Bajaj Electricals continued despite the JV being called off, the former is now looking to enter the market on its own. And since Bajaj Electricals does not consider power tools as its core business, the company management has decided to generate cash by disposing off the Bajaj Ventures business.

Saturday 28 July 2012

Lupin eyes drug brands in US, Japan

This story first appeared in DNA Money edition on  Friday, July 27, 2012.

Lupin Ltd, India’s third-largest pharma company, is looking to acquire drug brands overseas as it seeks to reduce reliance on less profitable generic medicines.

“There is an active ongoing effort and we are looking at multiple assets. We are hopeful of closing one or two opportunities within the current fiscal,” said Vinita Gupta, director, Lupin. The areas being looked at include paediatric, dermatology, ophthalmology and respiratory.

While Gupta did not specify the geographies eyed for the acquisitions, analysts said the buys will happen mainly in the US, followed by Japan and Europe.

Lupin is seeking to maintain its fastest pace of quarterly sales growth in at least three years by adding to its product portfolio in the world’s biggest drug market. The company and rivals including Ranbaxy Laboratories are shifting strategy to cut their dependence on selling generic versions of medicines as the number of formulations losing patent protection plummet from their peak in 2012.

Lupin earned more than five times as much selling branded medicines such as Antara, a treatment for reducing cholesterol, compared with average sales of all its copycat formulations, according to Fortune Equity Brokers.

In an earlier interaction with DNA Money, Ramesh Swaminathan, president – finance & planning and CFO, Lupin had said the company will invest around $100-120 million (Rs550 crore) in capital expenditure this fiscal. To be funded through internal accruals, the money would be spent across various therapeutic areas and expansion of existing units.

The funding for the international acquisitions will be over and above the capex outlay by the management for this fiscal, said an analyst with a domestic broking firm.

A company spokesperson said the June quarter results beat street estimates by 7-10% in turnover and net profit and 15% on earnings before interest, tax, depreciation and amortisation.

Lupin and larger rivals including Ranbaxy and Dr Reddy’s are trying to boost profit by offering products that are similar though not identical to those protected by patents, claiming they are not copycat versions.

The US FDA classifies such formulations as new drugs, and if approved, they can be sold exclusively for as long as three years in the US.

“If the product clicks, then you make a lot of money and your margins will be also higher,” Bino Pathiparampil, a pharma analyst at IIFL, said. “The development costs will be far higher than an ordinary generic though.”

Lupin has a network of 170 sales representatives in the US to sell its branded portfolio, its president Nilesh Gupta said, adding the company’s future acquisitions are likely to be in an area that doesn’t require a large number of sales personnel.

Lupin is focusing on brands that “don’t need 500 representatives to cover a good number of doctors,” he said. With Bloomberg

ITC net rises 20%, beats Street

This story first appeared in DNA Money edition on  Friday, July 27, 2012.

ITC, the diversified major with interests in consumer goods, hotels, cigarettes and paper, beat street estimates for the first quarter by reporting 20.2% on-year growth in net profit at Rs 1,602 crore (up from Rs 1,330 crore).

Earlier this week, an analyst poll by Bloomberg had indicated that ITC’s profit would grow 19% on-year to Rs 1,580 crore while sales were seen rising 16%.

Key contributors to business included growth in fast moving consumer goods (FMCG) business, price hikes in cigarettes and lower losses in ‘other FMCG’ streams.

The FMCG segment registered robust revenue growth of 23% and improved profitability, ITC said in a statement. “Agri business profits increased, largely driven by improved realisations and enriched portfolio. The paperboards, paper and packaging business witnessed robust performance driven by product mix enrichment. However, hotels business continues to be impacted by weak global and domestic economic environment.”

Rikesh Parikh, VP-markets strategy and equities, Motilal Oswal Securities, said that ITC’s numbers are broadly in line. “Key positives were the lower on-year loss in the other FMCG business and margin improvement in the FMCG business even after the high impact of duty. We expect the company to sustain its margins in the cigarettes business. We also expect the FMCG business to start contributing to the bottomline,” he said.

The company’s gross revenue (or income from operations) at Rs 9,457 crore grew by 15.3% on-year, driven primarily by branded packaged foods, educational material, stationery and the cigarettes business.

Its profit from operations grew by 21.3% on-year to Rs 2,174 crore; profit before tax (PBT) at Rs 2,337 crore was up 20.6% on-year; and earnings per share or EPS for the quarter stood at Rs2.05.

V Srinivasan, research analyst at Angel Broking, said that ITC posted healthy growth in overall net sales. But growth in the cigarettes division primarily came from price hikes.

ITC’s on-year revenues from the agri (Rs 1,691 crore) and hotel (Rs 232 crore) businesses stood flat, in line with the market expectations. Operating loss of the other FMCG business at Rs39 crore, although down on-year from a loss of Rs 76 crore, rose on a sequential basis from a loss of Rs 17 crore in the last quarter of last fiscal.

“This was a disappointment. We continue to remain neutral on the stock, as we believe it is fairly priced at current levels,” said Srinivasan.

Net sales in other FMCG grew 33% on-year to Rs 1,473 crore and losses came down from 7% to 3% of sales.

Cigarette topline grew 15% to Rs 3,304 crore with margin improving 2% on-year. After an excise duty hike of 20% in this year’s Budget, ITC hiked prices by an average 12% in April.

This month the Uttar Pradesh government hiked value-added tax (VAT) on cigarettes to 50% from 17.5%. Analysts expect the company to increase prices 36-40% in UP and 1.5-2% elsewhere to mitigate the impact of the VAT hike.

Lupin plans Rs 550 crore capex in FY'13

This story first appeared in DNA Money edition on  Wednesday, July 25, 2012.

Lupin Ltd, the third largest Indian pharma company by sales, is upping the ante on expansion. The  company has lined up a significant capital expenditure in the current fiscal across various therapeutic areas and on expansion of existing units, a senior company official said.

Ramesh Swaminathan, president – finance & planning and CFO, told DNA Money, “We will invest around $100-120 million (Rs550 crore) in capex this fiscal.” The company will fund the expansion with internal funds.

It has also chalked out aggressive product launches with a robust pipeline across global markets, particularly the US, Europe and Japan.

“We’ll have more than 20-25 products in America alone. In Japan we are looking at close to 20 products over three years and 30-40 products in India on an annual basis,” said Swaminathan on the sidelines of the company’s annual general meeting on Tuesday.

Lupin’s US sales jumped 40% in dollar terms in the April to June 2012 quarter.

In rupee terms, the company’s net profit rose 33% to Rs280.4 crore year on year on higher double-digit sales growth across the US, Japan and India. Net sales rose 44% to Rs2,219.2 crore.

Kamal K Sharma, managing director, Lupin, said, “Strong operating performance, aided by product launches and exceptional growth across US, India, Japan and South Africa, have helped us deliver yet another quarter of sustained growth.”

Highlights of the quarter included a decline in material and personnel costs 3% and 0.6%, respectively though manufacturing and other expenses increased 2.2% year on year (yoy).

Swaminathan said manufacturing and other expenses increased because of higher research & development spend of close to 1%, in addition to lumpiness in sales and promotional expenses.

The company’s US and Europe formulation sales contributed 38% to its consolidated revenues for the June quarter as they grew 60% to Rs841.3 crore yoy.

Its interest and finance expenses rose 74.4% to Rs10.1 crore in the reporting quarter, which Swaminathan said was largely because the company had made an acquisition in Japan. In November, Lupin, through its subsidiary Kyowa Pharmaceutical, had bought Japanese firm I’rom Holdings Co.

Taro shareholders nix Sun offer to buy 33%

This story first appeared in DNA Money edition on  Friday, July 20, 2012.

Minority shareholders of the NYSE-listed Israeli firm Taro Pharmaceuticals have turned down majority stakeholder Sun Pharmaceutical’s $367 million offer to acquire the remaining one-third stake they do not own yet.

Rejecting the proposal, they said in a statement on Thursday that the Indian drugmaker’s offer of $24.50 per share was inadequate and not in their best interests.

On October 19 last year, Sun made its offer which was at a near 26% premium to Taro’s share price. Since then, however, Taro’s share price has risen, to close 0.14% up at $35.69 on Wednesday. At the time of writing, Taro was trading at $37.41 on Thursday.

In 2007, Sun had offered to buy Taro Pharma for $450 million, but it could obtain management control only in September 2010 after a bitter legal battle with Taro’s former promoters. Sun now holds 66.32% of Taro, bought in tranches, the first being the 36% it acquired at $7.75 in May 2007.

In an attempt to take the company private, Sun Pharma had made a non-binding offer to acquire the balance stake last year, but it was not successful.

Sun Pharma officials were not available for comment.

Ever since Sun bought the controlling stake in Taro, the latter’s two minority shareholders -- Raging Capital and Grand Slam Asset management -- have been pressuring Sun for a higher price to part with their stakes. They said there was a significant improvement in Taro’s performance over the years and that Sun was highly undervaluing its shares. Raging valued Taro’s shares at $106.91, while Grand Slam put its figure at $48. Another minority shareholder – Guardian Point Capital – had asked Sun to revise its buyout bid as well.

Sun has been maintaining that it will stick to its offer price, but, in the wake of Thursday’s developments, it may well have to reconsider. — With Agencies

Friday 20 July 2012

Philadelphia courts Kuoni to lure Indian leisure travellers

An edited version of this story first appeared in DNA Money edition on Tuesday July 17, 2012.

Kanika Choudhary
Rajiv Duggal
From Hindi speaking guides at tourist spots to serving masala chai, the US city of Philadelphia is going all out to woo the over 12 million Indian outbound leisure travellers.

Having worked aggressively towards promoting education and related activities for over two years now, the honorary ambassador of Philadelphia to India, Kanika Choudhary is set to replicate the magic in the area of travel and tourism. Taking the first step in this direction, a partnership agreement has been inked with Kuoni India to design, promote and market Philadelphia to Indian tourists taking leisure travel to the United States.

A native of India, Choudhary has lived in Philadelphia for 12 years and is very confident about the huge opportunity both the nations could explore in the coming years. Commenting on the recent association with Kuoni India, she said that partnership will focus on promoting leisure tourism giving the Indian outbound leisure travellers a personalised touch.

“The approach will be extended in every aspect that Kuoni India will be working with us on. This apart, we will have the city government make a special niche for the Indian tourists visiting the city of Philadelphia,” she said.

Kuoni India on its part will now introduce Philadelphia as part of its US tour package as the city was never being launched as a standalone product earlier. In fact, Philadelphia was always a pass-through and never a one-night stay destination in Kuoni’s US itinerary earlier and all that is about to change now.

According to Rajiv Duggal, managing director, Kuoni India, while New York is iconic it is also very expensive as compared to Philadelphia, which is 25% cheaper and still offers the tourist a culturally rich American experience. “This is very unique to the city. The government is very receptive to suggestions and quick in adapting as per the needs and requirements of the tourists visiting the destination. We are in the process of putting together a strategy on bringing Philadelphia and India come closer.

“Brainstorming is also being done to see quality tourism whether groups, FIT, MICE etc moving into Philadelphia and that was the main purpose behind my recent visit there. It is a new, interesting destination for us and we will be putting a lot of effort in promoting the place in the coming months and years,” said Duggal.  

Kick-starting the awareness exercise a couple of years ago promoting Philadelphia’s educational institutions and universities with the aspirants across India, Choudhary is working aggressively towards putting Philadelphia on the itinerary of Indian leisure travellers to the US. While the arrivals into Philadelphia from China is huge followed by Asia and Europe, outbound traffic from India has started picking up gradually. And now with Kuoni India by their side, Choudhary is confident that the numbers will shore up significantly in the coming years.

“Philadelphia might be most famously known as the birthplace of American democracy, but you'll find it's an ideal destination for discovery as you explore its colourful neighbourhoods, learn more about its rich history and delve into its spectacular sites and attractions. We are putting together a host of offerings for the Indian market and are confident of welcoming 3,000 to 5,000 tourists this year,” she said.

Emphasising on the fact that it is not a one way traffic, Choudhary added, “We are not just pushing them to come to Philadelphia and we are certainly not here to ask or to make deals. Making friends, allies / contacts with the people of India and assisting them build deep relationships with Philadelphia is what we are focusing on. We want them to have the real American experience.”

Citing an example of what a real American experience was all about, Choudhary said, Philadelphia is where the United States (US) was born (on July 4, 1776), with the signing of the Declaration of Independence – a document separating the 13 colonies from England. This apart, it is also known as the city of birth, with the oldest ice cream maker, the oldest departmental store, the largest shopping mall and so on.


With a fairly decent size of Indian population of around 10,000 in the state of Pennsylvania, the destination currently offers huge opportunities in sectors like education, medicine, research and development, life sciences, biotech etc. One of the very unique aspects about Philadelphia is that it is situated between New York and Washington, DC, and can be reached easily in an hour and a half via flight.

Among other responsibilities on Choudhary is to enhance the trade and investment relationships with India. While Pennsylvania as a state has already initiated efforts through an office in Bangalore, the city of Philadelphia will put in place a process to building trade and investments related relationships with Indian companies. “I have met several top officials from the chamber of commerce and as a matter of fact we are planning to get a delegation down to Gujarat this year. We will be channelising more such activities with various Indian states in the near future,” said Choudhary.

Monday 16 July 2012

Ronnie Screwvala, Vishal Gondal acquire 15% in online startup OnContract.com

Ronnie Screwvala promoted Unilazer Ventures Ltd and Vishal Gondal promoted FACT have acquired 15% in an online startup company OnContract.com for an undisclosed sum. This funding is expected to be largely used for technology up gradation.

OnContract.com (earlier StaffOnContract.com) is a contract staffing platform, addressing the growing challenges of getting quality contract staff by providing an organised internet based marketplace to get people on just-in-time and just-for-time basis. Launched commercially in 2011, the company has been catering to the small and medium sized enterprises (SME) segment and currently has over 5500 SME staffing companies as its registered members. Over the years, the company see this number increasing to 50,000.

According to Chetan Indap, founder and CEO, OnContract.com, the platform's key value proposition is centered around quicker, convenient and credible market for people on contract; across industries, roles and levels, irrespective of location within India. "Contracting in India is growing at 20% CAGR and not too far in the future will match the levels attained by developed countries. We have the first mover advantage in this space and with investors like Unilazer and FACT backing us, we will be able to scale it further from this solid base,” said Indap.

OnContract.com also has over 2,000 individuals (willing to work on contract basis). The portal is industry agnostic and categorises itself based on functional roles, for instance marketing, sales, HR, technology, engineering, accounting, admin etc. Among leading industry names that are members of the platform include IL&FS, Biocon, Suzlon, Larsen & Tubro Infotech, DTDC, Oberoi Hotels, Kraft Foods, HCL etc.

“Contracting is going to be an inevitable phenomenon for the Indian businesses and consumers. With smart contracting, businesses will be able to achieve fat-free performance and enable conversion of fixed costs to variable,” said Ronnie Screwvala, promoter, Unilazer.

The platform provides access to over 400 categories of skills across industries to help businesses implement variable staffing strategies effectively. Its key business model is where customers (companies) ‘Give Contracts’ and contractors (individuals) ‘Win Contracts’. Currently the platform enables B2B and B2C collaboration with a plan to address C2B and C2C models in the near future. This funding is expected to be largely used for technology up gradation.

According to Vishal Gondal, “Contracting as a way of life is going to be the future in India. Utilising people for short periods and for specific tasks will become the norm for both companies and individuals."

Govt’s visa on arrival scheme sees tourist traffic increase by 16.4%

Foreign tourist arrivals in India witnessed an increasing trend due to the Visa on Arrival (VoA) scheme launched by Indian government back in January 2010.

As per data released by the Ministry of Tourism (MoT), Government of India (GoI), the period between January-June 2012 registered an increase of 16.4% in the arrival figures as compared to the same period last year. Additionally, despite being a low season, the arrival numbers grew by the month of June 2012 saw increase by 12.2% vis-a-vis June 2011.

“A total of 6,721 VoAs were being issued between January – June 2012 as compared to 5,774 during corresponding period of 2011. Likewise, in the month of June 864 VoAs were issued against 770 in June 2011,” said a note issued by the ministry.

According to ministry officials, the VoA scheme was launched as a facilitative measure to attract more foreign tourists to India. The said facility was initially made available to citizens of five countries, viz. Finland, Japan, Luxembourg, New Zealand and Singapore, visiting India for tourism purposes. However, the same was extended to the citizens of six more countries, namely Cambodia, Indonesia, Vietnam, Philippines, Laos and Myanmar from January 2011.

Among the top nations visiting India using this scheme during January-June 2012 included tourists from Japan (1,625), New Zealand (1,427), Indonesia (1,092), Philippines (944), Singapore (887) and Finland (513). As for June 2012 arrivals is concerned, Japan again the pack with 233 tourists followed by New Zealand (171), Indonesia (152), Singapore (135) and Philippines (113).

The ministry data also showed that maximum number of VoAs was issued at Delhi airport (3,888) followed by Mumbai (1,473), Chennai (954) and Kolkata (406).

Tuesday 10 July 2012

Data authenticity is cable operator’s responsibility, says information ministry

An edited version of this story first appeared in DNASunday, July 8, 2012

It appears to be a ‘better late than never’ move by the Ministry of Information and Broadcasting (M-I&B).

Having learn't from their recent experience with the cable digitisation deadline exercise, the ministry has amended the cable laws by inserting a new rule that puts the onus of authenticity of data, information on the multi-system operators (MSOs) and local cable operators (LCOs). The said amendment has been made after the office bearers realised that some of the MSOs / LCOs may have taken them on a ride, which lead to postponement of the cable digitisation deadline by four months to October 31, 2012.

In a statement issued on Saturday, July 7, 2012, the ministry said that while assessing the preparedness of digital addressable system (DAS) in four metros, it has come across numerous inconsistencies of data provided by the service providers, particularly MSOs, in regard to inventory position of set top boxes (STBs) and its deployment.

“In view of this, the ministry has decided to amend the Cable Television Network Rule, 1995 (Cable Rules) making it obligatory for every cable operator and MSO to provide correct and timely information as and when it is sought for,” it said in the statement.

As a result, a new rule christened ‘10 A Obligation to furnish information’, has been inserted in the Cable Television Network Rule, 1995 (second amendment) Rule, 2012. The obligation to furnish information under the amended rule 10 A has been incorporated as one of the terms and conditions of registration of cable operator under Rule 5 A and MSOs under rule 11 D.

The said amendment now makes it mandatory for MSOs and LCOs to provide information as and when it is sought for by the Central Government or State Government or authorised officer or any agency of the Central Government. In case of any irregularities, the MSO / LCO would lose its registration as it will then be considered as violation of one or more of the terms and conditions of registration.

Commenting on the development, Ashok Mansukhani, president - MSO Alliance (a representative body of the Indian cable industry) and whole-time director of Hinduja Ventures, said, “It’s a clarificatory amendment, something every MSO / LCO will now have to abide by.”

According to sub-section (7) of section 4 of the Cable Television Networks (Regulation) Act, 1995, the Central Government may suspend or revoke the registration of cable operators or MSOs if they violate one or more of the terms and conditions of registration.

“Incorporation of rule 10 A as one of the terms and conditions of registration of cable operators and MSOs will empower the Central Govt. to cancel or suspend the registration of cable operators or MSO if the information sought for by it is not provided by them. This will ensure correct and timely submission of information by cable operators and MSOs,” said statement issued by the information ministry.

While the M-I&B has been closely monitoring the preparedness of various activities for the implementation of DAS, its success largely depends on timely seeding of STBs at the consumer premises. The ministry has finally realised that timely availability of accurate data with regard to the seeding of STBs is the only way to ensure digital switch over within the timeframe and if necessary, for taking mid-course corrective actions.

Saturday 7 July 2012

Rupee fall gives pricing power to hotel firms

This story first appeared in DNA Money edition on Saturday, July 7, 2012.

Several domestic segments are reeling under the rupee fall, but the hotel industry is certainly rejoicing. The depreciating rupee is making hotel rooms cheaper for foreign tourists, who now have to shell out fewer dollars for the same tariff against a few months back.

A foreign national today is paying only $180.31 ($1 = Rs 55.46) for a day’s stay in five-star hotel room priced at Rs 10,000 as compared to $195.08 ($1 = Rs 51.26) in January.

Industry experts said if the dollar remains at the current level or appreciates for the next couple of quarters, it would make India as a destination cheaper for foreign tourists. This could also give hoteliers an opportunity to hike room rates in the September-February business season.

In a note on Tata Group’s Indian Hotels Co Ltd (IHCL), Saurabh Kumar and Gunjan Prithyani, analysts with JPMorgan, said the IHCL will benefit from rupee depreciation. IHCL is South Asia’s largest hotel operator with 12,200 guest rooms and 103 hotels.

“INR depreciation is equivalent to tariff reduction. It improves pricing power henceforth – a lower INR has in effect amounted to a US dollar tariff reduction for incoming tourists, who typically account for over 60% of demand in the luxury hotels category (5 star and above),” the JPMorgan analysts said.

Taking into consideration that the average room rates have gone nowhere over the last four years across most markets and on an inflation-adjusted basis tariffs are probably back to pre-2005 levels, the analysts said.

“Fiscal 2012 occupancy levels at around 65% levels would suggest that pricing power isn’t back just yet, but we believe that at current tariffs demand should be price inelastic for an 8-10% hike in the second half,” they said.

However, hoteliers feel the currency impact will be felt only if demand for hotel rooms increases significantly, more so in the business season starting September.

Sanjeev Shukla, director-marketing, Four Seasons Hotel, Mumbai, said the overall demand situation at present is fairly subdued mainly because of the slowdown and other concerns.

“Going by the current rupee-dollar rate, India is already cheaper 20% from a year ago. However, it hasn’t really benefitted the trade largely because the key metros are largely business destinations and this time of the year is typically a low season. However, traditional tourist destinations such as the Golden Triangle (Delhi-Jaipur-Agra), Goa and Kerala would benefit,” said Shukla.

Industry players said since rupee has fallen against other currencies such as euro and Korean won too, tourists from those countries also stand to benefit.

However, this being a slack season, the traffic has been slow from these countries such as Spain and Portugal.

“It would be interesting to see how the winter will pan out when traditional leisure traffic from countries including US, France, Germany starts to move. How much the dollar will impact business is still a big question and would depend on the overall economic environment at that time of the year,” a senior official from a hospitality consulting firm said.

Thursday 5 July 2012

Poonawalla scoops up Dutch Bilthoven

This story first appeared in DNA Money edition on Thursday, July 5, 2012.

Serum Institute of India, the flagship company of Pune-based Cyrus Poonawalla Group, has bought 100% stake in Bilthoven Biologicals from the Netherlands government.

This deal gives Serum access to technology and expertise for making the injectible polio vaccine (Salk) in addition to a crucial manufacturing base in Europe, with access to the important European and US markets.

According to Cyrus Poonawalla, chairman, Poonawalla Group and Serum Institute, the acquisition gives them an important operational and strategic beachhead in Europe and the US, with the important manufacturing base in the Netherlands. “This will also significantly enhance our earlier offerings in the pediatric vaccines segment including DPT, Measles and MMR, where we are the global leaders today,” he said.

Located in the city of Bilthoven, the company’s manufacturing facility is spread over 20 acres and employs over 200 people. The facility has a manufacturing capacity of over 20 million doses of vaccines a year, which are sold in Europe and various developing countries.

The deal is the first ever overseas acquisition by an Indian vaccine company, said Adar Poonawalla, executive director, Poonawalla Group and Serum Institute. “The initial cost of €32 million is only for 100% share purchase. The entire acquisition will roughly cost us €80 million, payable over the next three years. This is because a lot of liabilities and assets are still to come to us and we will have to absorb and spend over the next three years or so. In addition, we will invest €20-30 million in the next few years towards infrastructure and building on capacities etc,” he said.

Funding the acquisition has been done through a mix of internal accruals and debt of €20 million taken largely for working and operational capital requirements.

“Our balance sheet can easily support this level of acquisition without taking much debt something we didn’t want to do at this stage,” said Poonawalla.

Bilthoven was in the market for over a year and had a host of contenders, including a couple of Chinese and Dutch companies and a few big pharmaceutical multinational companies. However, most of these suitors pulled out of the race as the company was booking operational losses of €30 million a year.

“The losses were mainly because of the company’s huge assets and there was not much sale as the product being manufactured has more future demand than current,” said Poonawalla.

The Government of Netherlands, according to Poonawalla, was looking for a strategic buyer that would retain the existing employees, turn the business around and help it grow.

Serum has had business dealings with Bilthoven for over three decades and was thus shortlisted as a preferred buyer.

Dish TV raises pack, subscription prices

This story first appeared in DNA Money edition on Thursday, July 5, 2012.

Dish TV India, the country’s top direct-to-home (DTH) player, has taken price hikes in channel packs and new subscriptions, effective July 2, as part of its annual pricing review.

RC Venkateish, CEO, Dish TV, said this was the first price increase in the calendar year 2012.

“We have taken an increase of Rs20 across rest of India (North India) packs, though no increase has been effected in the South India packs. Also, the set-top box prices have been increased to Rs1,790 from Rs1,590 charged earlier. This will go towards dealing with the impact of rupee depreciation.”

According to an earlier guidance by the management, the company was expecting an increase of 12-15% in the content costs for the current fiscal. Venkateish, however, said, “There’s no connection between content costs and the hike in the pack prices.”

He said, “Irrespective of whether they are bought in advance or not, the set-top boxes are bought on buyer’s credit of 24-36 months and therefore currency depreciation has an impact. In case the rupee recovers in the coming quarters, we stand to gain.”

Other DTH operators -- Tata Sky, Airtel Digital TV and Reliance Digital TV -- did not offer a comment on whether they will hike prices.

Rahul Kundnani, research analyst - institutional equities - media and retail, SBICAP Securities Ltd, however, said that price hike by leading DTH player will prompt other DTH operators to follow suit.

He said, “The price hike will not only improve Dish TV’s Arpu (average revenue per user), but also mitigate the impact of higher content and other costs. Dish TV’s exit Arpu was Rs151 in fiscal 2012 was flat as compared to fiscal 2011. The impact of this price hike will be seen in the current quarter and exit Arpu for this fiscal is seen at Rs155-160. Its operating profit margin, which was 24% last fiscal, is seen at 27% in fiscal 2013 and it is also expected to turn net profit positive during the year.”

Sunday 1 July 2012

For PEs, domestic fund tap turns a gusher

My Colleague Sachin P Mampatta co-authored this story appearing in DNA Money edition on Thursday, June 28, 2012.

Private equity firms that bank on domestic investors are finding it easier to raise money as they have managed to give decent returns, even as funds dependent on international funding continue to remain subdued.

If the recently closed deals are anything to go by, domestic investors are so bullish that venture capital/PE firms are not only meeting targeted corpus but also adding a few hundred crores more.

For instance, IIFL Alternate Asset Advisors Ltd, India Infoline’s venture capital arm, last week raised the size of its Rs500 crore real estate fund – IIFL Real Estate Fund (Domestic) Series-1). The fund, scheduled to close this month, will now close with Rs700 crore.

Balaji Raghavan, CEO and CIO of IIFL Alternate Asset Advisors Ltd, said, “Foreign money has not been forthcoming in the last couple of quarters for various reasons. There is a general negativity about the country and the economy as such because of credit downgrade, slowdown, taxation and GAAR to name a few. A couple of players looking to raise money outside have shelved plans.”

ASK Property Investment Advisors — the real estate private equity arm of ASK group — closed its second real estate fund (ASK Real Estate Opportunities Fund) on Monday by raising Rs1,000 crore.
According to company officials, the large corpus raised is in a contrast with the funding constraints witnessed by the real estate fund industry and is possibly the highest amount raised domestically by any realty fund in the last 4-5 years.

Sunil Rohokale, MD & CEO of ASK Investment Holdings, said despite tough economic conditions ASK has been able to leverage its strong relationships with existing clients for investments in the new fund.“Majority of our investors have been repeat investors from our first fund, who have experienced our strategy and performance,” he said.

In March this year, the Ask fund made its first exit in Noida at an internal rate of return of 54% with a multiple of 2.45. Amit Bhagat, MD & CEO, ASK Property Investment, said the current environment, also provides excellent countercyclical opportunities.

“Our first exit is a clear indicator of the potentially sound investment track record and investors have rewarded us with higher contributions in the second fund,” said Bhagat.

Another such example is of Motilal Oswal Private Equity Advisors’ India Business Excellence Fund-II. The fund is nearing a close for its second round of fundraising, according to a source.

Although there has also been a Rs100 crore investment from a fund of funds entity, the majority of the Rs450 odd crore in commitments are from domestic investors. The fund is set to close by first week of July.

DTH firms say digitisation extension will hurt them

This story first appeared in DNA Money edition on Friday, June 22, 2012.

The deferment of switchover from analog to digital cable signals in the four metros by the Union information and broadcasting ministry has not gone down well with the direct-to-home (DTH) service providers.

Describing it as a major setback to them, the DTH industry players have expressed hopes that the deadline would not be revised further. The ministry has extended the deadline by four months to October 31, citing lack of on the ground preparation by the multi-system operators (MSOs) and local cable operators (LCOs).

RC Venkateish, CEO, Dish TV India, said the deadline extension is not fair on the DTH players. “As a service provider we have made significant investments towards digitisation infrastructure, support staff / manpower, customer service initiatives, etc. And suddenly the goal post has been moved. DTH operators, since the last six years, have been religiously pursuing digitisation and the regulator appears to be only concerned about MSOs / LCOs which, despite having enough time on their side, haven’t prepared themselves for it. I hope the new deadline is made sacrosanct and doesn’t become a rolling date,” he said.

As part of the Phase I cable digitisation exercise, over 12 million television homes in New Delhi, Mumbai, Kolkata and Chennai were to switchover to digital signals by June 30, 2012. And by the end of fourth phase in December 2014, over 90 million analogue cable TV homes were estimated to convert to digital. Industry experts said the digitisation goal will not be met if the deadlines keep getting extended.

Harit Nagpal, president, DTH Operators Association of India, said the DTH community, which is licensed, regulated and pays taxes on behalf of each of its customers, has once again lost out to its analog competitors, which are not subjected to these rules.

“It is difficult to understand what different is being planned in the next 3-4 months that was not in the last six which would not lead to another postponement in October. Moreover, November hosts Diwali and could turn out to be an unwise time since it’s the peak month for broadcasters for advertising revenues and the migrant installer community goes back to their hometowns,” said Nagpal.

With significant capital expenditure already incurred in anticipation of huge demand for their services, DTH operators fear deadline extension is likely to impact business.

Shashi Arora, CEO, Airtel Digital TV, “It will put strain on the financial health of the DTH industry due to additional inventory carrying costs and investments in infrastructure that the industry will have to incur now. While we were fully geared up for the earlier deadline, we will continue to support government’s digitisation agenda as it is in the best interest of our customers and look forward to its successful implementation at the earliest.”

While applauding the ministry’s decision to extend the deadline, the MSO / LCO fraternity said the deferment was inevitable.

Ashok Mansukhani, president - MSO Alliance and whole-time director - Hinduja Ventures, said he was not at all surprised and was entirely expecting the deadline extension. “There was a significant delay in the regulator’s recommendations and tariff order. As a result there was not enough time left for MSOs and LCOs to finish the necessary arrangements and agreements with broadcasters. Now that we have time on our side, the focus will be on getting the Reference Interconnect Offers (carriage fees) and other commercial terms finalised so that a proper business model could be put in place.”

A meeting between the Telecom Regulatory Authority of India (Trai) and MSOs is scheduled to take place on June 25, 2012, to chalk out activities / timelines for meeting the new deadline. The Trai taskforce will be meeting every fortnight to take stock of what is happening and how much ground has been covered by the MSOs / LCOs in the effort towards digitisation.

Another hurdle, industry sources said, was with the issue of new MSO licences that were handed over by the regulator as late as Wednesday. As a result new players were in no position to roll out their services within 10 days, they said.

However, Mansukhani is confident that despite the delay in issue of licences, the new MSOs will work aggressively and put together necessary infrastructure (head-end, STBs and other customers support services) and catch up with the others.

Digitisation deadline deferred by 4 months

This story first appeared in DNA Money edition on Friday, June 22, 2012.

The sunset date for conversion of cable systems from analogue to digital has been postponed by four months to October 31.

The earlier deadline for Phase I digitisation in four metros — New Delhi, Mumbai, Kolkata and Chennai — was June 30.

“All the TRAI (Telecom Regulatory Authority of India) regulations for DAS (digital addressable system) will come into effect from November 1,” the Ministry of Information and Broadcasting said in a statement issued late Wednesday evening.

The ministry, however, did not mention any changes to the December 31, 2014 deadline set for the rest of the country.
The ministry decided to extend the deadline after taking into consideration the lack of preparedness among multi-system operators (MSOs) and local cable operators (LCOs) in the four metros.

While broadcasters have been pushing for sticking to the June 30 deadline, cable operators had sought more time citing shortfall in the availability of set top boxes. “...installation of set top boxes has not picked up necessary pace for the completion of the process of digitalisation by June 30,” the statement said.

However, the ministry asserted that there will be no further extension of the deadline thereafter and that MSOs and LCOs will have to ensure complete digitisation in the four metros within the said timeframe.

While DTH operators have been very bullish about implementing cable digitisation, the trouble largely was on the MSO and LCO side wherein some of the MSOs said they were not fully ready for various reasons including non-availability of set top boxes.

Industry sources, however, said the key reason for the delay was that commercial arrangements between broadcasters and MSOs with respect to the rates to be charged to customers had not been finalised.

Offline is becoming crucial for online travel agencies

This Q&A first appeared in DNA Money edition on Thursday, June 21, 2012.

Pratik Mazumder, head of marketing and strategic alliance, Yatra.com, says online travel agencies (OTAs) are working towards positioning themselves as one-stop-service providers for all the travel needs. He speaks about the transition in the online travel space and his company’s plans. Excerpts:

How has the business evolved over the years?
The OTA business took shape 5-6 years ago with a prime objective of offering a flexible single window customer access, convenience and transparency for booking domestic flights. However, the last few years have seen OTAs coming out of their reliance on flight bookings, restructuring their business and moving towards becoming a one-stop service provider. OTAs are now covering the overall hospitality and travel space by offering international flights, hotels, international and domestic holidays, car rentals and so on thereby addressing the consumer’s entire travel needs. That’s going to be the way the OTA industry will progress and transpose in the next five years.

So has the transition already begun? What stage is it currently at?
The top two players (Yatra and MakeMyTrip), which control a little over 70% of the overall online travel business pie, have walked the road of transition already. Though a slow one, the process started two years ago and we are now speeding up our efforts in this direction.

Could you tell us about the initiatives taken by Yatra in this direction?
On the product level, the offerings predominantly were in the form of domestic flights and other tabs/ user interface weren’t so prominent then. But if you look at our website now, there is a huge skew towards hotels, holidays and international flights among other things. We have set up a meeting, incentive, conference and event (MICE) division to cater to the corporate sector and handle their leisure desk.

Has having an offline presence become equally crucial for online travel companies? What are your plans in this area?
We realised very early that selling holidays online could be a challenge and hence worked towards migrating the customers to our stores by changing their brand preference. We have already set up 40-odd Yatra.com stores in 20 cities across the country and are now rolling out a franchising model. Over 100 stores will be opened in Tier II markets, particularly in high footfall areas, as a result of which customers will be able to physically experience the brand on the ground. These stores will be operational in this financial year and take the total store count to 140.

Have the OTAs finally started making money?
They are not losing money for sure. Yatra, in particular, has significantly benefited by incorporating the hotels, holiday categories as part of its offerings as these offer considerably higher margins. To further increase revenues, we will add more avenues, cross-sell and up-sell other products. In the last six years, about 20 lakh customers bought a domestic ticket product from Yatra and less than 5% booked a hotel or a holiday from us. It’s not that the balance 1.9 million people haven’t taken a holiday, just that they bought a holiday from some other brand or a mom-n-pop travel agency. So the game now is about driving brand preference and being seen as a complete travel brand and a leader in the category. That’s the reason we signed Salman Khan as the brand ambassador.

Mexico – goldmine for Indian pharma cos

My Colleague KV Ramana co-authored this story appearing in DNA Money edition on Tuesday, June 19, 2012.

Estimated size of the generic drugs market in Mexico: $4 billion (out of a total market size of $11.5 billion). Margins are high too. The regulatory regime is known for relatively quick approval of new molecules.

There’s more. Unlike in some European markets where insurers determine which drugmaker’s products are covered for claims, Mexican consumers pay for their drugs out of their pockets, hence are free to use any drugs. Apart from drugs for critical illnesses, products relating to the central nervous system (CNS), oral contraceptives and biosimilars have a big market in Mexico.

And so, Indian pharmaceutical companies, who excel in making generics, can hardly wait to check if Mexico, the second largest market in Latin America after Brazil, could be their new Eldorado.

Although only a few Indian firms are tapping Mexico as of now, analysts are convinced all that will change shortly. “Like Brazil, Mexico encourages a lot of branded generics over branded biosimilars. This market is currently growing at a rate of around 11-12%. Hence, Mexico holds promise for Indian companies, given the scope to focus on generics,” said an analyst.

For instance, Ranbaxy, Torrent, Glenmark and Sun Pharma already have a presence in Mexico. Cadila is keen to expand into Brazil and Mexico. Dr Reddy’s (DRL) has an active pharma ingredient (API) manufacturing plant in Mexico (it does not sell any products though).

Lupin set up its subsidiary Lupin Mexico 14 months ago and has started filing branded and generic products. It wants to focus on therapy segments like CNS, oral contraceptives and biosimilars.

Bhavika Thakker, research analyst at IIFL, said, “As medicine, healthcare and related costs head northwards in Western countries, markets like Mexico certainly offer immense opportunity for drugs companies in emerging economies like India. For, they already have proven capabilities in making high-quality, standard-compliant products at a fraction of the cost in developed markets.”

In developed markets, drug regulatory issues bordering on protectionism have been thwarting Indian pharmaceutical companies. In this context, Mexico’s recent measures to reduce regulatory hurdles hold much attraction.

“What makes Mexico attractive is that the government is taking proactive steps to encourage foreign participation and putting in place guidelines that could help expand the market," said Vinod Dhawan, group president, business development, Lupin.

According to analysts, Mexican drugs regulator Cofepris is aggressively working toward approving pending applications. As against 150 in 2010, the regulator approved 9,225 applications last year, thanks to select third-party agencies that preview applications and weed out incomplete ones, reducing processing time.

Foreign companies don’t have to set up a manufacturing plant in Mexico to sell drugs. However, exporters need to have their own distribution, storage and legal representatives. Mexico’s objective is to increase supply of medicines in the country. “This opens way for Indian firms to supply to Mexico from Indian facilities,” wrote Anubhav Aggarwal, research analyst with Credit Suisse, in a report.

Companies such as Lupin have already started filing products from India. According to Lupin sources, Mexico’s approval process is quite similar to that of the US and Brazilian. “It doesn’t take a lot of time, is quite liberal and it is the standard time (16-22 months) that companies can expect for any regulatory pathway to action their filings,” said a Lupin official.

Even in terms of realisation, analysts said, Mexico offers very good prospects. “There is no doubt Indian companies will invest in marketing and distribution set-ups. Once they acquire a critical mass, a large part of incremental revenue will flow down to their bottomline. That’s why, markets like Mexico are highly profitable,” said an analyst.

Since Cofepris recognizes good manufacturing practice (GMP) certificates issued by regulators in the US, Canada, Japan, Australia and Brazil to foreign drugmakers, many Indian companies are expected to benefit as they already have such GMP certificates.

But not in the immediate future though, say industry veterans.

“Many Indian pharma majors already have agreements with pharma multinationals to share markets. Indian pharma companies have entrusted the responsibility of tapping emerging markets to their foreign partners. So, at least in the immediate future, the presence of Indian companies in Mexico would be through these tie-ups and not directly,” said a CEO of a pharma research major.

He cited agreements of Dr Reddy’s with GSK and Aurobindo with Pfizer as examples. Dr Reddy’s, for instance, has not registered any revenues from its API facility in Mexico.