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Sunday 25 August 2013

Phoenix plans to raise Rs 1,000 crore

This story first appeared in DNA Money edition on Saturday, Aug 24, 2013.

Mixed-use developer Phoenix Mills Ltd (PML) is expected to soon kick-start the process of raising Rs 1,000 crore following shareholder nod for the proposal at its 108th annual general meeting.

The funds mobilisation will be in one or more tranches through a public issue or a private placement or a preferential issue or any other kind of public issue or private placement as may be permitted under applicable laws from time to time, PML said.

The PML management did not share any details about this fund-raising exercise. However, it is very likely that the company may use some portion of the Rs 1,000 crore towards repaying debt.
PML’s standalone debt as of June 30 stood at Rs 284 crore, stake-wise effective gross debt at Rs 2,025.3 crore and consolidated gross debt at Rs 2,400.5 crore.

The consolidated debt, the developer added, went up mainly on account of new special purpose vehicles (SPVs) being consolidated. PML’s total debt figure across all SPVs edged up to Rs 3,167.4 crore in the April-June quarter compared with Rs 3,117.6 crore in the previous quarter.

There are some new launches in the pipeline, which may add up to approximately three million square foot (msf) spanning over 2013-14 to 2014-15. The rollouts will be spread over cities like Bangalore (1.4 msf), Chennai (0.4 msf) and Pune (0.4 msf).

Analysts put FY14 (estimated) at 1.4 msf and value at Rs 1,550 crore.

“Since the bulk of the new launches are in the premium segment, the success remains a key re-rating trigger,” said Parikshit Kandpal and Varun Chakri, research analysts with Karvy Stock Broking, in a June-end report.

Larsen and Toubro Ltd seeks to double overseas orders

This story first appeared in DNA Money edition on Friday, Aug 23, 2013.

Larsen and Toubro Ltd (L&T) is working on a template to more than double its international order flow this fiscal.

This, it feels, will go a long way in maintaining operating profit margins at 11-11.5% this year, given an overall financial weakness affecting the Indian infrastructure industry.

A M Naik, group executive chairman, L&T, said the management has worked aggressively on building a strong organisation outside India to bag infrastructure projects. “We are targeting order inflows of Rs30,000 crore in this fiscal. As challenges become more intense in the domestic market, we are focusing overseas.

Our strategy is to do as many projects in international markets as possible. This will help us overcome the overall slowdown experienced in the domestic market,” he said at the company’s 68th Annual General Meeting in Mumbai on Thursday.

In the next few days, the company is expecting Rs3,500 core worth of orders from Qatar in the power transmission and sub-station space. Another Rs1,500 crore to Rs2,000 crore worth of road projects from Doha, in addition to a metro project, is in the works.

The company sees a bulk of these international orders coming in from the Middle East. It’s also targeting the Commonwealth of Independent States (CIS) and Far East markets, thus widening its scope for any overseas business opportunity. The current domestic to international order flow mix in the company now stands at 75:25.

In fact, the infrastructure major has started to sharpen its focus on international orders over the last couple of years.

For instance, its order book stood at Rs6,000 crore, excluding IT, engineering and exports of products, in fiscal 2012 and the company achieved a figure of Rs12,000 crore in the last fiscal.

There have been some earlier reports that L&T is weighing divesting stake in Dhamra Port Company Ltd – L&T currently owns 50% through its subsidiary, Infrastructure Development Projects Ltd (IDPL) and the balance is owned by Tata Steel. Clearing the air, Naik said discussions (for IDPL stake sale) are still going on.

“In the current economic situation, valuations tend to get depressed. We are not in a distressed sale position. If we get the right value, we will go ahead with plans to dilute up to 20%,” said Naik.

The company management has clarified that it has no overseas fund raising plans citing strong cash flows and will be able to meet funding requirements. At a group level, the company debt stands at Rs60,000 crore, much of which comes from financial services and concessions business.

On how much of the debt is hedged and vice-versa, R Shankar Raman, CFO, L&T, said, “The debt is largely in Indian rupee (INR) as the revenue profile is INR as a result the question of hedging a significant portion doesn’t arise for the group,” he said adding that earning more dollars will be the best bet to deal with the depreciating INR.

Naik added, “The current situation in terms of economic development is not good at all. People say that the gross domestic product (GDP) growth is around 5% and sometimes one wonders if it is really the case looking at what is really happening on ground at present. The INR is reaching a new low on a daily basis and we really have no idea how further down will it go. The infrastructure sector has been going through troubled times since the last over two years now and I don’t see any improvements (in terms of possible economic recovery) in the next one year or so,” he said.

The company is restructuring its engineering and services business (a major part within L&T). A new subsidiary -- L&T Technology Services Ltd -- is being formed which will buy over the engineering piece which is with L&T Infotech.

“We will then transfer -- at the right time between now and April 1, 2014 -- within engineering also in that company thus making it a technology services company. This will make us a very strong engineering service provider. It’s too early to say if we will be listing that company,” said Naik.
 

Shot in arm for Wockhardt as pledged shares released

This story first appeared in DNA Money edition on Wednesday, Aug 21, 2013.

Drug-maker Wockhardt said its promoters and promoter-entities have completely released shares pledged by them earlier.

Over 6.97 crore shares held by Khorakiwala Holdings and Investments and another 442,785 shares held by Habil Khorakiwala were released. With this, promoters have no more shares pledged in the market.

Wockhardt did not share other details.

Analysts said the release of pledged shares is a positive for the stock, but it does not end troubles for the company.

Bhavika Thakker, research analyst with IIFL, said the June quarter has not been kind to the company.

One bad news followed another: US drug regulator FDA issued ‘Form 483’ – it is a post-inspection record of violations of quality or safety norms at the drug manufacturing plant – last week to Wockhardt’s Chikalthana unit, which contributes the largest chunk to the company’s revenues; before that, there was a warning letter; then, an FDA import alert for the Waluj facility. Even the UK drug regulator was not happy with the Chikalthana unit.

Consequently, Wockhardt’s stock plummeted 77% this fiscal so far (from Rs2,005.80 on April 1 to Rs454.25 on Tuesday).

“Release of the promoters’ pledged shares is just a short-term measure. I’d still advise a wait-and-watch approach on this stock. There are some serious operational issues that need to be addressed by the management to bring back confidence in the market,” said Thakker.

Analysts said Wockhardt now looks like a beaten-down stock. Although some traders may perceive in it a counter-bet, the stock does not make for a good pick from an investment perspective, they said.

“Any bad news from the Chikalthana facility will see the stock getting battered,” said an analyst. To preempt any such situation, Wockhardt has got on board the US-based Lachman GMP Consultant to assist it in reviewing all the regulators’ observations.

Tony Fernandes eyes railway hotels

This story first appeared in DNA Money edition on Monday, Aug 19, 2013.

Hospitality companies including Tune Hotels, owned by AirAsia promoter Tony Fernatndes, are in the race for setting up hotels at 14 semi-developed sites near key railway stations across the country.

Ircon International, a company under Railways, is offering multi-functional complexes (MFCs) that feature hotel rooms, designated space for food and beverage and operations facilities at key railway stations across India.

The total guest room inventory across these hotels is expected to be over 600.

Tune Hotels India Services (THIS) operates as a 60:40 joint venture between Tune Hotels and Mumbai-based Apodis Hotels and Resorts Ltd. While Apodis holds the master franchise for Tune-branded hotels in India, the management of these properties will be handled by THIS, which will also look after technical and development services and project management consultancy.

Apodis Hospitality Group, which also owns and operates bed-and-breakfast hotel chain Mango Suites along with Cafe XO restaurants, confirmed it is in the bidding participation.

Umesh Luthria, executive director and CEO, Apodis Hospitality Group, said the company is working on the tender document. “We are looking into the legalities of the tender document while simultaneously assessing the market demand. If it is an over 100-room hotel, then we will go with Tune brand and if the location has a smaller inventory of 50-70 guestrooms, then it will be Mango Suites,” he said.

The 14 sites are in Jammu, Allahabad, Haridwar, Udaipur, Jodhpur, Gwalior, Indore, Jabalpur, Raipur, Digha, Siliguri, Hubli, Madurai and Kannur.

With railways offering hotel developments on their land parcels, industry experts said a huge opportunity awaits the hotel chains operating in India.

The projects are located in close proximity to railway stations and some of the sites even have space for meeting rooms, banquet halls, food courts, supermarkets, shops for pharmacies and ATMs.

Shreenath Shastry, national director-hospitality and leisure, Knight Frank (India), the company which is handling the bidding process, said, “The organised segment will see value in the sites on offer because of prominent locations, clear title developments and ready markets.”

Sanjay Sethi, MD & CEO of Berggruen Hotels, said, “It will give an opportunity to a lot of new, improved, competitive and quality products to address the market. I’ll be very keen to explore this opportunity. While not all sites will be viable, at least 20-30% of the locations on offer would certainly make for ideal locations,” he said. Berggruen is in the process of creating a separate brand to tap the ever-growing budget and economy travellers, he said.

Industry sources said the 14 sites are only the first tranche. In all, there are over 100 developments in various stages of  planning and development.

Tata Group’s Ginger, Accor’s Formule 1 and Lemon Tree’s Red Fox are the other major players in the budget hotel segment, and are likely to participate in the bidding process as well.

The final date for submission of the bids is September 5 and the technical bids will be opened the next day.

Sunday 18 August 2013

Aman gives fillip to DLF debt-cut plan

This story first appeared in DNA Money edition on Friday, Aug 16, 2013.

Despite slowdown in the hospitality business, Aman Resorts, realty major DLF’s hospitality chain, has seen significant improvement in both operations and perceived valuation, lifting the parent’s hopes of selling Aman profitably and cut its own heavy debt.

In fact, the hotels business has contributed Rs 10.4 crore to DLF’s first quarter consolidated net profit of Rs 181 crore, a turnaround from loss-ridden quarters of last fiscal.

In an earnings call, Ashok Tyagi, group CFO, DLF, cited improved operations and better foreign exchange translation as key reasons for Aman operations turning profitable.

To divest non-core assets and reduce debt, DLF agreed to sell the Aman Resorts portfolio (excluding Aman Hotel, Delhi) back to its founder Adrian Zecha for $300 million.

Zecha was, however, not able to arrange the funds in time, leading to expiry of the exclusivity period in June. The DLF management later initiated discussions with a few other buyers even as Zecha remains in the fray.

Tyagi said the company was confident of closing the Aman Resorts deal soon and that the transaction will be value-accretive compared to its earlier valuations.

Saurabh Chawla, ED-finance, DLF, said, the hotel business will likely post an Ebitda number of $20 million this fiscal on the back of  “an exceptionally good January-June period” and given that the group is “slated to open four properties across the globe”.

The DLF management will be expecting increase in the valuation of Aman Resorts, considering that new hotels / resorts in international markets like Italy, China, Vietnam and Jordan will be added to its portfolio, and the business has also started generating profits.

Cox & Kings expects windfall from Rupee fall

This story first appeared in DNA Money edition on Friday, Aug 16, 2013.

Travel and tour operator Cox & Kings said it is expecting to benefit in a big way from the depreciating rupee, which has cut costs for inbound tourists.

Peter Kerkar, Group CEO, Cox & Kings, said, “The benefit of rupee decline helps us because a large percentage of our revenues is in foreign currency. The initial signs are showing travel to India should certainly become more attractive.”

While the gains were not reflected in the first quarter results, company officials said the real fall in rupee against dollar came in June and hence the impact will be visible in the upcoming quarters.

With the Indian travel, tourism and hospitality sectors set to enter the peak season from October, industry players are gung-ho on the prospects.

“India is finally looking affordable from a global perspective. We are hoping that our last two quarters of the current fiscal — when our international offices send business to India as well as the incoming traffic into the country — should be boosted by this current situation,” Kerkar said in an recent earnings call.

On the other hand, Anil Khandelwal, CFO, Cox & Kings, said the company hasn’t seen any slowdown in terms of leisure holidays.

“People will continue with their travel plans irrespective of depreciating rupee against the dollar. That’s because, people basically keep a budget for travel in their mind and plan their holidays accordingly,” said Khandelwal.

According to Union tourism ministry, foreign tourist arrivals were up by 1.9% to 12.8 lakh despite April-June quarter being a lean season.

Wockhardt says one more unit under FDA scanner

This story first appeared in DNA Money edition on Thursday, Aug 15, 2013.

Pharma major Wockhardt’s regulatory troubles over its manufacturing facilities do not seem to end.

After its Waluj unit in Aurangabad,  foreign regulators have  expressed concerns over its the largest revenue contributing unit of Chikalthana in the same district.

According to a senior Wockhardt official, both US Food and Drug Administration (FDA) and the UK Medicines and Healthcare Products Regulatory Agency (MHRA) had conducted inspections at its Chikalthana, Shendra and Waluj Cephalosporin plants in July.

“The Chikalthana plant was jointly inspected by USFDA and MHRA in the last week of July and they have raised observations. We have 483s, some of them are more serious and some are minor in nature. We are reviewing all the questions and observations and will respond to the FDA next week,” the official said on an earnings call.

No critical observations were recorded by the MHRI for Wockhardt’s Shendra plant that caters to the UK, Irish and the US markets. The USFDA is expected to inspect the Shendra facility next month. The inspections by the regulators at its Waluj Cephalosporin plant were satisfactory, said the official.

For fiscal 2013, the Chikalthana facility contributed $230 million to the company’s sales.

India Cements cuts capex to Rs 250 crore

This story first appeared in DNA Money edition on Wednesday, Aug 14, 2013.

India Cements has cut its capital expenditure plan of Rs 300 crore by Rs 50 crore, company officials said on a recent earnings call.

“The company’s current gross debt stands at Rs 3,230 crore and the company doesn’t intend to spend on capacity expansion in fiscal 2014. However, it may look at expansion over the next 2-3 years,” Mihir Jhaveri and Prateek Kumar, analysts at Religare Institutional Research, said in a company note on Monday.

The capex in this fiscal would largely be spent towards maintenance and some debt reduction.

In the first quarter, India Cements spent towards capex of Rs 60 crore, while it was Rs 530 crore for the entire last fiscal.

The company’s profitability was hit due to weak realisation despite its industry leading volume take-off in Q1. The company’s sales increased 3% on-year to Rs 1,240 crore, but its operating profit and net profit declined 31% and 59% yoy to Rs 193 crore and Rs 43.9 crore, respectively.

Rajesh Kumar Ravi, analyst, Karvy Stock Broking, said in his company note said while sales volume rose 11% yoy (as compared with industry growth of 3-4%), the company’s net realisation declined 1% quarter on quarter and 6% yoy.

“This was despite cement price improvement in Andhra Pradesh market during later part of the first quarter. Net realisation decline (3% below our estimate) resulted in Ebitda decline of 31% yoy (versus our estimate of 19% decline) and adjusted net profit decline of 59% yoy (versus our estimate of 39% decline).”

Eros to finalise NYSE IPO by August-end

This story first appeared in DNA Money edition on Wednesday, Aug 14, 2013.

Eros International, a leading global media and entertainment company, is likely to finalise its New York Stock Exchange (NYSE) listing plan by this month-end.

The company had filed for an initial public offering (IPO) for $250 million with the US Securities and Exchange Commission in March last year.

Eros International has a BSE-listed subsidiary / associate company called Eros International Media (EIML). The latter’s officials could not be reached for comment.

An industry source, however, said EIML is very likely to disclose the NYSE listing details at its annual general meeting on August 28.

In another development, EIML has partnered with YM Movies of music luminary A R Rahman to produce a Hindi feature film which will mark the latter’s debut as a film producer.

“It is a 16-year relationship with Eros and this time it is extending the role a bit more. It is about exploring the other side of creative partnership,” said Rahman in a statement.

The yet-to-be-titled film has been conceived and written by Rahman with help from international and local talent and will celebrate youth’s sensual love, art and self-discovery.

IHCL sees room rates rising in Oct

This story first appeared in DNA Money edition on Tuesday, Aug 13, 2013.

Indian Hotels Co Ltd (IHCL), the Tata group hospitality flagship, has reported a 42.42% decline in consolidated net loss at Rs19 crore in the first quarter fiscal 2014 over corresponding quarter last year. Total income from operations during the April-June quarter was 7% higher at Rs908 crore on year.

Anil P Goel, executive director-finance, IHCL, said the company saw an occupancy of 59% across the portfolio of hotels in India. “The average room rate (ARR) for the quarter at Rs8,300 was slightly lower as compared with the last year.

Operating margins, at 11%, were in line with last year. We have been able to bring down financing costs by 23% over the previous fiscal,” he said.

With the Indian hospitality set to enter the business season in the next 45 days, the company is hopeful of marginally increasing the room rates.

Deepa Misra, senior vice president–sales and marketing, IHCL, said there has been an overall 20% increase in supply of hotel rooms during April–June, 2013 over last year.

“Most of the new supply (about 69%), has come in the upper upscale, upscale and midscale segments and 28% in luxury (largely Chennai and Hyderabad). Demand growth has been 17% for this period. However it is still trailing supply growth by 3% which has had an impact on the hotel industry occupancy and average room rates (ARRs),” she said.

On the international business front, Goel said the portfolio has performed very well with all the three hotels in the US reporting encouraging results in the first quarter.

“Both Boston ($300 - ARR) and San Francisco ($300 - ARR) have touched 80% occupancy while it is 77% at The Pierre ($640 - ARR) against 65% last year. We will be looking to increase the ARRs in these markets.

“The UK market has been quite stable, Maldives is likely to stabilise by the time we get into the business season, hotels in Sri Lanka, Malaysia, Bhutan and Sydney are doing fine as well,” said Goel.

As of August 2013, the company has a total inventory of 14,506 rooms. In the current fiscal, IHCL will add 12 hotels (mainly through management contracts) and inventory of 1,575 rooms.

Dish TV plans domestic sourcing of set-top boxes to offset rupee drop

This story first appeared in DNA Money edition on Monday, Aug 12, 2013.

Dish TV, India’s top direct-to-home (DTH) operator, is considering domestic sourcing of digital set-top-boxes (STBs) to offset rising costs due to rupee depreciation.

A flagging rupee has been an industry-wide concern for a while now, calling for efforts to control the related impact on business, the company’s top official said.

Jawahar Goel, managing director, Dish TV India, said on a recent analyst call, “Given the depreciating rupee, we are evaluating possibilities for improvement in hardware economics of consumer premises equipment (CPE) sourced from India. We have also been considering options with our overseas suppliers to commence production at a base in India.”

Last month, Dish TV had taken a price hike of `250 per STB to bridge the widening gap between cost of CPE and the amount realised from the customer.

Other DTH players such as Tata Sky, Airtel Digital and Reliance Digital followed suit by increasing prices broadly in the same range.

Also, in this year’s Budget, Union finance minister P Chidambaram had hiked customs duty on imported STBs from 5% to 10%. Considering there aren’t many domestic manufacturers of STBs for the digital cable and DTH sectors, the government’s decision to make imported STBs expensive was seen as a move to incentivise domestic manufacturing and bringing more players in the market.

Among the few local STB manufacturers are Noida-based Dixon Technologies, Kortek Electronics and Videocon Industries. International players including Hampshire-based Exset are understood to be exploring tie-ups with Indian manufacturers to produce STBs here.

Industry experts said Dish TV’s move to source STBs locally may be followed by other players, experts said.

“We have a hunch that in the near future there can be a higher duty on import, because of the balance of payment issues. In fact, we have already alerted our vendors to set up shop, to convert and produce the STBs locally. We are not buying new STBs for next 3-4 months as we have enough stock. And by that time the vendors are likely set up shop in India,” said Goel.

Dish TV currently has an inventory of 1.4 million STBs and another 0.6 million with the channel partners. At `60 a dollar, the total cost of the CPE, company officials said, is close to `2,700 for a standard definition set. DTH players have been offering STBs at a subsidised cost to attract subscribers but are gradually expected to move towards a zero-subsidy model by increasing prices. Commenting on the possibilities, R C Venkateish, CEO, Dish TV India, said,

“We are moving towards elimination of subsidies in the next one to two years. So certainly a combination of efforts to reduce costs as well as increase prices will be used. Local manufacturing will play a crucial role towards this. While it is not a very big chunk, even a couple of hundred rupees of savings will go further towards reduction of subsidies.”

He said the company is focused on increasing value delivery to the customer and is coming up with innovations. “New products will be introduced in the second half, which will further position us separate from cable,” he said.

Lupin sets up R&D in US, ropes in Teva, Sandoz executives

This story first appeared in DNA Money edition on Saturday, Aug 10, 2013.

Lupin, the country’s third largest pharmaceutical company, has just begun setting up a research and development (R&D) centre in the US, but the R&D head of Teva Pharmaceuticals and another top official from Sandoz, the generic pharmaceuticals division of global industry leader Novartis, are on board already.

Lupin is identifying other key officials and expects to get the R&D centre operational around August next year.

Vinita Gupta, CEO of Lupin, said the company started working on the US R&D project six months ago. “It’s a work in progress. We are attracting top-notch research and business development talents for this facility. Some key officials have come on board in the last quarter and they are working on putting together plans and partnerships. Our goal is to get the products in the respiratory and dermatology segments into the market as soon as possible.”

Another reason for the R&D unit in the US, she said, is that it “help us to undertake research of controlled substances, something we can’t do outside of the US because of their import barriers”.

On an average, the company spends 7.5-8% of its net sales on R&D. Last fiscal, it spent Rs 709.80 crore. Some 9% of Lupin’s 13,000 staff worldwide are in the R&D space.

Desh Bandhu Gupta, founder and chairman of Lupin, said, “We’ve been learning a lot from our domestic R&D centres. The US facility will add to this overall learning and the drug discovery process.”

Lupin has invested Rs 2,778 crore in the last six years in R&D. It has two R&D centres in India: Lupin Bioresearch Centre in Pune, a centralised set-up with 1,400 scientists,  and Lupin Research Park in Aurangabad, a smaller facility with 50-60 employees. The Pune centre’s biotechnology group has already received its first marketing authorisation for an oncology product. It received milestone payment of $6.5 million for two products being jointly developed with Medicis Pharmaceutical Corporation.

The centre is conducting bioequivalence studies for its generic products and branded formulations, and has completed 19 full studies last fiscal, taking the overall tally to 83. It filed for 157 new patents last fiscal, taking the overall total to 1,181.

Lupin targets 50% sales from brands

This Q&A first appeared in DNA Money edition on Thursday, Aug 8, 2013.

Lupin Ltd reported 43% increase on-year rise in the first-quarter net profit at Rs 401.1 crore. Analysts, however, were not impressed over 5% fall in domestic revenues and 12% sales drop in Japanese market, which led to the stock falling 6.5% on Wednesday. Vinita Gupta, CEO, Lupin Pharmaceuticals Inc and group president & CEO elect, Lupin Ltd, spoke about the Street's concerns and expansion plans. Excerpts from the interview:

On first quarter results
The concern is that a big part of our income about Rs 100 crore is other income. But the P&L is presented in a way that it captures just one part of the foreign exchange impact.
The Rs 100 crore is primarily forex impact on transaction gain and the other lines in the P&L capture the expenditure. So, the net forex impact is Rs 30 crore. Besides, this is also after a long time when our revenue grew in single digit. The reason primarily is the slowdown in India business, the US business grew 20% in dollar terms and 25% in rupee terms. India has been a challenge with National List of Essential Medicines, which came into effect in June. Our Japan business grew 5% in yen terms but yen depreciated so in rupee terms we had an impact.

On next level of growthWe have a host of growth drivers. On the generic side -- in the US as well as other parts of the world like Japan -- we have a huge pipeline of over 175 products, of which only about 50 have come into the market. We are also working on growing the pipeline and investing in differentiated platforms that will help us in long-term growth for the generics business.

On new drug discovery plansOur biggest differentiator is we are trying to build, will be the Novel Drug Discovery and Development (NDDD) programme. Our efforts are directed towards identifying and developing new therapies for areas including metabolic/endocrine disorders, pain and inflammation, autoimmune diseases, CNS disorders, cancer and infectious diseases. We have a portfolio of 10 novel compounds that are moving through a robust pipeline from discovery to development.

On specialty / branded businessWe are trying build the brand business in the US to start with and have also started looking at other markets. If you look at our business 60% is generics and the balance is branded. The branded business is more profitable compared to generics hence is more sustainable in the long term. It is our endeavour to make branded 50% or more.

On Alinia deal with RomarkWe have acquired rights for US market for Alinia drug from Romark. We have partnered with them on the oral suspension which is focused on the pediatric market. They were doing $2 million in the pediatric market and we have taken over that revenue and would build it from here. While the overall market for that drug is $2 billion the pediatric part is small and we think we have a very good product to be able to get a good share.

Indiareit raises Rs 300 cr under domestic fund

This story first appeared in DNA Money edition on Wednesday, Aug 7, 2013.

Indiareit Fund Advisors, the real estate private equity (PE) arm of Piramal Enterprises, has raised Rs 300 crore out of its targeted Rs 1,000 crore Domestic Scheme V (DS-V) fund.

This is the sixth in the series of funds raised by the investment firm that currently manages a total corpus of Rs 4,343 crore across five earlier funds and two third-party mandates.

Khushru Jijina, MD, Indiareit, said the company managed the fund-raise despite a tough business environment. “The speed of the interim close is testament to the quality of our sponsor, track record of the platform and our constant endeavor to always act in fiduciary capacity for our ever growing family of investors,” said Jijina.

DS-V is targeting structured returns by taking advantage of the mismatch between the availability of capital and its demand from the real estate sector.

As a result, company said, the investment underwriting will focus on the quality of the project, visibility of cash flows and track record of the development partner. This apart, an extra layer of security will be added to enhance the risk-return profile, it said.

Additionally, the PE firm’s Mumbai Redevelopment Fund (MRF) has reached its targeted corpus of Rs 500 crore.

Until a couple of months ago, the fund had raised Rs 400 crore and has now reached a final close. MRF is targeting a niche strategy focused on slum and redevelopment projects in Mumbai and has already committed around 40% of its corpus.

New Zee film channel to target youngsters

This story first appeared in DNA Money edition on Wednesday, Aug 7, 2013.

Zee Entertainment Enterprise Ltd (Zee), India’s leading media and entertainment company, is launching a new Hindi movie channel to engage with the younger audience.

Christened ‘&pictures’ and positioned as a premium and interactive movie channel, it will go on air on August 18. A pay channel, it will initially be available with all the cable networks and later be extended to the direct-to-home (DTH) operators.

Bharat Ranga, chief content and creative officer, Zee, said the company has own network of consumer feedback that comes from across 172 countries.

“Many people shared details about their lifestyle, beliefs, values, likes and dislikes, and based on these insights we found out that households these d ays comprise members with a new emerging set of mindset. We thought there was an opportunity to cater to these television viewers worldwide and hence creation of this new brand,” said Ranga adding that more launches can be expected in the future.

Commenting on the logo, the company officials said the ampersand sign in ‘&pictures’ signifies ‘Udaan’ (flight) and ‘Neev’ (rooted) and celebrates the duality of contemporary Indians.

“The Ampersand in the logo merges seamlessly with the ‘p’ of pictures and connotes the ease with which today’s viewer blends his ambition to soar high while remaining rooted to his sacrosanct values. The colour red radiates the viewer’s bold ambition as well as the richness of their traditions,” said Ranga.

&pictures will be the sixth movie channel in Zee’s bouquet that comprises Zee Cinema, Zee Cinema HD, Zee Premiere, Zee Classic and Zee Action. The new channel’s programming slate will be anchored by 24 hours of daily content including premieres of upcoming big-ticket films in its first year.

The new channel will have a nucleus of 250-300 films, of which 80% including the likes of Chennai Express, Zanjeer, Besharam, Ghanchakkar, Commando and Aatma will be exclusive to the new movie channel.

The rest will be picked from the common Zee library, particularly those released in the last 10 years. Among the newer titles in the library include films Kai Po Che, ABCD, Barfi, English Vinglish, Tanu Weds Manu, Love Aaj Kal, Agent Vinod, Agneepath, Desi Boyz, Kambakt Ishq and Break Ke Baad. In fact, 90% of ZEEL’s common library comprises movies released post 2000.

Also, the company has lined up various innovations to be unveiled in the coming months.
Taking the first step towards interactivity the channel has announced a contest for India’s first digital crowd sourced film on Twitter.

Akash Chawla, marketing head (national channels), Zee said, “We will also launch some advanced products that will take interactivity to a completely new level altogether.”

Godrej Prop strikes Gurgaon, Panvel deals

This story first appeared in DNA Money edition on Tuesday, Aug 6, 2013.

Godrej Properties, the Godrej group’s real estate arm, has signed its third premium residential development in Delhi/NCR (National Capital Region) market.

The Mumbai-based realtor entered a joint development agreement with Oasis Buildhome to develop a 13.7 acre land parcel on the Northern Periphery Road (NPR) in Gurgaon. The project is expected to offer 1.2 million square feet (msf) of saleable area.

Pirojsha Godrej, managing director & CEO, Godrej Properties, said, the project fits well with the company’s strategy of growing presence in leading real estate markets.

“We will aim to replicate the success of our previous projects in the Gurgaon market,” he said.

Anuj Nangpal, MD-Investor Services, DTZ International Property Advisers Pvt Ltd, said this particular project is expected to deliver a topline of anywhere between `800  crore and Rs1,000 crore.

In another development, the realtor has added 37 acre to its existing 110 acre township project in Panvel. Located between NH4 and the Mumbai–Pune Expressway, the land parcel will be developed in partnership with the landowners.

According to Godrej Properties, the combined project has an estimated saleable area of 4.3 msf as per the current Special Township Policy (STP). The saleable area available in the project is likely to increase to above 11 msf as per the proposed STP and it will receive 35% of the profits from the development.

The realtor has also acquired the ‘Godrej’ trademark from Goderj Industries for Rs25 crore.

Hotels catch 'deflagging' fever as owner, operator lose love

This story first appeared in DNA Money edition on Tuesday, Aug 6, 2013.

The bonhomie between hotel operators and the owners of the respective assets is starting to fade as the ongoing economic stress shows no signs of letup.

Indeed, in some cases, the cracks have reached a stage where a parting of ways appears to be the only option left. After the spate of flag-hopping – where a property rebrands under another operator either at the end of the agreement period or on termination of the deal – seen last year, therefore, it’s time to ‘deflag’.

Take Hilton Worldwide’s partnership with Eros Resorts & Hotels Ltd (ERHL), part of realtor Eros Group, founded by J R Sood and currently run by his son Satish Sood. The global hospitality major is understood to be ending the association – inked in 2011 – with ERHL to manage their two new and one already existing hotels.

A Hilton Worldwide spokesperson brushed aside the claim. “These are speculations. We have no comment.”

However, an industry source said one of the management agreements between the two parties has been allowed to expire already, while the other two will expire by September-October this year.

“The Soods are unlikely to renew the three management contracts as hotels in the Delhi-NCR region are not doing well as was projected earlier. In fact, the asset owners had earlier roped in InterContinental Hotel Group (IHG) to manage the three hotel assets before bringing Hilton on board. And now Hilton is on its way out as well,” said the source, requesting not to be quoted.

ERHL couldn’t be reached for comment. The two Mayur Vihar hotels (located next to each other) are being managed under Hilton and Double Tree by Hilton brands, while the Nehru Place property is being operated as Eros Hotel, managed by Hilton. The three hotels will, in all likelihood, be operated as standalone properties branded and managed by Eros after October this year.

However, Eros may also be looking to divest the 160-room Hilton hotel at Mayur Vihar and is believed to have already given a ‘sell’ mandate.

But as if losing three hotels wasn’t bad enough, Hilton appears to have more pain in store.
The five-star Hilton Hotel at Janakpuri, owned by Piccadilly Hotels, may go out of its network as well, said the earlier-quoted source. “The asset owners are in talks to bring in a new operator. Hyatt Hotels Corp is seen as a strong contender for the property.”

A Hyatt spokesperson said there was no official communication from the company on the said development.

Yet another instance of de-flagging involves a Starwood Hotels & Resorts brand – the 240-room Sheraton Udaipur Palace Resort & Spa. Earlier operated as a standalone property under Rockwood Palace Resort & Spa brand, it was re-branded by Starwood under a new management contract with the asset owners (Rockwood Hotels & Resorts Ltd) in August 2010.

Starwood’s India office said it had no comment to make on Sheraton Udaipur at this point.
The source, however, insisted that “Sheraton Udaipur will get deflagged by the end of this fiscal.”

The economic slowdown, industry experts said, is the key factor driving the deflagging trend. Hotel asset owners are getting impatient and unwilling to foot the bill for operational expenses when hotels are not making money.

“Given the liquidity crunch, asset owners have started intervening in the management company’s ways and means of operating the hotel. Some have started dictating terms as well by asking hotel operators to cut costs by reducing the number of expat personnel in their respective hotels. So positions like expat chefs and general managers are being carefully watched for cost rationalisation purposes,” said a top industry official.

But there’s another side to the problem, too, feel a section of industry experts. According to them, hotel operators sometimes tend to over-promise and under-deliver. What makes the situation worse is that the gap between revenue and expenditure gets significantly highlighted in stressed market conditions.

“Imagine being promised average room revenues of Rs 8,000-9,000 in a Tier II market when the maximum one can get is Rs 4,000-4,500. When the situation prolongs and expenses continue heading north, asset owners get in the damage control mode and take matters in their own hands,” said an official in charge of hotel development for a leading domestic chain.

Cement demand to stay damp this quarter

This story first appeared in DNA Money edition on Monday, Aug 5, 2013.

Good rains that are likely to remain strong for the rest of the monsoon are set to keep cement demand under pressure in the ongoing July-September quarter.

While demand for cement between May-end and June was supported by pre-monsoon increase in construction activities, it is unlikely to be sustained going forward, experts said.

In its update on the industry, ratings agency Icra said off-take remained weak in April-May 2013, mainly due to lacklustre demand from end-user industries.

“Domestic cement production grew by 8.2% year on year (yoy) in April 2013 as compared with 12.5% a year ago. The growth slowed to 3% yoy in May 2013, pulling down the overall growth rate in April-May 2013 to 5.6% yoy. Though the demand picked up temporarily from May-end, it does not reflect any fundamental recovery in prospects,” it said.

K C Birla, chief financial officer, UltraTech Cement, said while April and May saw 5.8% growth in demand, it was just about 1% in June.

“Overall, demand growth for the quarter was around 3-4%. Surplus capacity in the sector of around 90 million tonne per annum coupled with lower demand has put significant pressure on pricing,” said Birla, adding his company’s per-tonne realisation was down 6% for the first quarter, impacting profitability.

Cement prices, which weakened during March and April 2013 due to less demand, recovered somewhat from mid-May 2013.

The hike in prices was supported by pre-monsoon increase in construction activities.

The industry also raised prices to pass on the increase in coal prices by Coal India Ltd (CIL).

As a result, the average wholesale cement prices (per 50-kg bag) increased around Rs 10 in Delhi, Rs 17 in Chandigarh and Rs 5 in Kolkata during April-June 2013.

Prices in some parts of southern India including Bangalore and Chennai also saw hike of Rs 10-15 per bag in June.

However, in the last week of June, prices came under pressure in northern, western and eastern regions with declines of Rs 5-20 per bag seen in
Delhi, Chandigarh and Ahmedabad markets.

Hyderabad, which saw average wholesale cement prices fall 20% from Rs 283 in July 2012 to Rs 228-232 per bag in April 2013, too saw a steep recovery in prices in the last week of May 2013.

The prices increased 30% to Rs 296 per bag in June 2013 there, driven by slowdown in capacity addition in South, production discipline and cost pass-through to customers.

On the cost side, the cement industry was affected by increase in coal prices by Coal India Ltd (CIL).

In May 2013, CIL reduced the prices of premium varieties of coal (G3 and G4) with gross calorific value in the range of 6100-6700 kcal/kg by 10% in line with decline in international coal prices.

To offset this, CIL raised the prices of low-grade coal (G6-G17) varieties used by Indian cement companies by an average 10%.

The impact of this hike will be more pronounced on companies which depend more heavily on domestic coal, Icra said.

HCC back in black after eight quarters

This story first appeared in DNA Money edition on Saturday, Aug 3, 2013.

Analysts expected Hindustan Construction Company (HCC) to report increased losses for the first quarter (Q1, April-June). After all, losses have been plaguing the construction and engineering major for the last eight quarters.

But surprise, surprise, HCC reported a Q1 net profit of Rs 19.2 core. For perspective, here’s a tidbit: in Q1 of last fiscal, HCC’s loss was Rs 31 crore.

The stock market quickly cheered the news, sending HCC shares to the upper circuit limit in intra-day trade. HCC closed 20% up at Rs 9.60 on the NSE.

Total income increased 19% on-year to Rs 1,149 crore. Operating profit or Ebitda stood at Rs 201.2 crore (Rs 69.1 crore in Q1 of last fiscal). Ebitda margin was at 17.6%.

HCC management attributed the turnaround to operational efficiencies, cost control and pending claims from clients.

Praveen Sood, group CFO, said 40% of the turnover came from the NH-34 project in West Bengal and the Kishanganga tunnel project in Jammu and Kashmir.

HCC’s consolidated Q1 debt  was Rs 10,000 crore while standalone debt was Rs 4,600 crore. Its order book stood at Rs 13,970 crore, excluding contracts worth Rs 2,265 crore where it emerged as a preferred bidder and is hopeful of winning the orders by the year-end.

During Q1, HCC received around Rs 40 crore in claims from government agencies NHPC and the National Highways Authority of India.

As part of its asset monetisation plan, HCC is in advanced stages of divesting its 18 lakh square foot (msf) commercial development at 247 HCC Park, Vikhroli, Mumbai, for Rs 175 crore.

Sood said due diligence is currently on and the deal is likely to be closed soon. Construction activities at its Lavasa township project in Maharashtra is in full swing with 5,000 workers on ground.

During Q1, 110 residential units were sold and more than 500 apartments and villas have been completed.  With 1.9 lakh tourists visiting the hill station, HCC’s hotels there registered average occupancy of 70%.

Glaxo patent on breast cancer drug revoked

This story first appeared in DNA Money edition on Saturday, Aug 3, 2013.

The Intellectual Property Appellate Board (Ipab) has done it again – revoked a patent belonging to a pharmaceuticals multinational.

Barely four months after revoking Bayer-Natco’s patent on cancer drug Nexavar, Ipab, the patent appeals agency under the commerce ministry, has cancelled the patent granted to the British drug major GlaxoSmithKline Pharma (GSK) for its breast cancer drug  Tykerb, the salt form of Lapatinib compound that is sold in the country.

Ipab, however, upheld GSK’s patent for lapatinib compound which is the active ingredient in Tykerb, citing innovative merit.

The ruling was delivered on July 27 by Justice Prabha Sridevan, chairperson of the Chennai bench of Ipab.

In April, the Supreme Court (SC) had set a precedent by rejecting a patent for Novartis’s cancer drug Glivec. The apex court had held that Glivec was an amended version of a known molecule called imatinib.

A GSK spokesperson said the company was pleased that Ipab upheld its basic patent for the Lapatinib compound which is valid till January 2019.

“We are, however, disappointed that Ipab has revoked our later expiring patent for the lapatinib ditosylate salt. This ruling only relates to the lapatinib ditosylate salt patent in India and does not affect our basic patent for Tykerb or corresponding patents in other countries,” the spokesperson said in an email statement.

“We will consider the possibility of taking further steps before the appropriate authorities to validate this.”

Tykerb has provided significant benefit to women with HER-2 positive breast cancer in India over the four years it has been available.

 As part of its easy drug access strategy, GSK has been offering Tykerb at discounted prices. A strip of 10 Tykerb tablets costs about Rs 4,160 and a patient is expected to take five tablets a day for 21 days if the cancer is in an advanced stage.

Industry experts said intellectual property protection is important to ensure that innovation is encouraged and aptly rewarded, and research-based pharmaceutical companies continue to invest in developing new medicines.

Surajit Pal, pharma analyst, Prabhudas Lilladher, said, “It will be another blow to Indian MNCs looking to introduce global brands or global patented drugs. Companies might rethink their strategies for the Indian market.”

Some analysts said pharma MNCs like GSK test the waters by having differential pricing for patented drugs in emerging markets and are not always driven by profit motive.

Moreover, patented drugs are niche products that generate high margins but low revenue.

So, Ipab’s latest decision may reinforce a view that drugs patentable in global markets are not patentable in India; but, from the end-user’s viewpoint, it could prove positive, analysts said.

For, Indian companies tend to offer generic versions of patented drugs at one-tenth of the price charged by the inventor.

“Companies like GSK may think twice now before introducing patented drugs in India,” said an analyst.

Berggruen plans 75 hotels by 2016

This story first appeared in DNA Money edition on Friday, Aug 2, 2013.

Berggruen Hotels, a six-year-old hospitality firm, plans to have a total of 75 hotels by 2016 from its earlier target of 40 hotels.

The new hotels to be launched by the company backed by New York-based investment firm Berggruen Holdings would be through a mix of owned, managed and franchise routes.

It currently has a guestroom inventory of over 1,300 across 14 operational hotels, of which six are owned and rest management contracts.

Sanjay Sethi, MD and CEO, Berggruen Hotels, said, “Seventy-five hotels will give us a total guestroom inventory of 6,600 across key metros, mini-metros and leisure destinations. We currently have 21 hotels under various stages of development, of which six (including two owned) will open in this fiscal. We will have one hotel getting operational every five weeks in the next eight months.”

He said the company is targeting a revenue of  Rs 410 crore for fiscal 2016 and Rs 135 crore for the current one. It is expecting operating profit of Rs 45 crore for this fiscal.

Berggruen Holdings, which had committed equity of $75 million at the time of inception of the hospitality firm in September 2006, has invested $62 million so far.

An additional Rs 135 crore through debt funding has been pumped in as well.

On further investment by Berggruen Holdings, Sethi said, “They are not averse to the idea, but new investments will be very opportunistic in nature and will be done on a need-to-do basis.”

A majority of the new hotels will be targeted at the mid-market segment under the Keys Hotels brand.

The company on Thursday added a new upscale hotel brand ‘Keys Klub’, which will largely cater to the top management personnels in the corporate world.

These hotels will come up in metros including Pune, Mumbai, NCR, Chennai, Kolkata, Jaipur, Ahmedabad and Hyderabad.

Berggruen, which plans to enter luxury segment in the future, is negotiating a land parcel to construct its own greenfield Keys Klub branded hotel in Mumbai, details of which were not disclosed.

“Discussions are currently on for 4-5 properties and our first Keys Klub hotel under management contract should hit the market in the next 10-12 days. Each Keys Klub property will have a guestroom inventory of over 100 and room size will be upwards of 275 square feet. The per-room development cost in these projects will be Rs 45 lakh excluding land cost,” said Sethi.

The first Keys Klub is likely to come up in Pune with guestroom pricing in Rs 4,000-6,000 range.

RInfra eyes reverse migration; Q1 flat

This story first appeared in DNA Money edition on Wednesday, July 31, 2013.

Reliance Infrastructure (Rinfra) reported a 0.7% on-year increase in first quarter (Q1, April-June) consolidated net profit at Rs 415 crore. Consolidated total operating income increased 1.2% on-year to Rs 5,452 crore. Earnings per share or EPS stood at Rs 15.8 against Rs 5.7 in Q1 of last fiscal.

Encouraged by a strong balance sheet and a debt-to-equity ratio of 0.92:1, the lowest in the industry, RInfra will be looking at a mix of organic and inorganic growth opportunities, particularly in the roads sector.

Lalit Jalan, CEO, said the company has looked at 30 different road projects but no deal has been concluded due to high valuation expectations from sellers. He added that inorganic expansion will not be restricted to roads sector alone.

RInfra has 60 lakh customers, out of which 28.8 lakh are in Mumbai. During Q1, it added 17,050 new customers. In the context of the multi-year tariff petition filed in 2012 and the public hearing that followed, the company said it has got clearance from the electricity appellate tribunal concerned to issue new cross subsidy surcharge and new regulatory assets for this fiscal.

“The entire hearing process is over and we expect the new order will be out any day. Once the order is put out, there would be significant reverse migration because RInfra is much more competitive than Tatas, in terms of total cost of power,” said Jalan.

The company’s engineering, procurement and construction or EPC business has large projects in the the pipeline, including expansion of the Sasan, Chitrangi and Thialayya projects and the hydro-electric projects of Reliance Power.

On the infrastructure front, RInfra has already commissioned nine road projects and it expects  two existing projects to get revenue operational this fiscal.

PVR Q1 net soars 79%

This story first appeared in DNA Money edition on Wednesday, July 31, 2013.

Multiplex chain operator PVR posted a 79% on-year increase in consolidated first quarter (Q1, April-June) net profit at Rs 13.9 crore driven by strong box-office sales, sale of  food and beverages (F&B) at its cinemas and revenue from on-screen advertisements.

Consolidated Q1 revenues were up 87% on-year at Rs 337.3 crore, while operating profit or Ebitda was up by 78% at Rs 61.4 crore.

Ajay Bijli, CMD of PVR, said integration of PVR and Cinemax is progressing well and the company management is focusing on drawing synergies from the combined scale of operations. This is already reflecting in PVR’s market share and financials.

The company’s film exhibition business showed a stellar Q1 growth on the back of strong same-store growth, addition of new multiplex properties as well as Cinemax multiplex circuit (post acquisition in January 2013). During Q1, PVR clocked 15.2 million footfalls at its cinemas, up  17% on-year.

Low volumes squeeze UltraTech Q1 profit 13.5%

This story first appeared in DNA Money edition on Tuesday, July 30, 2013.

UltraTech Cements, the country’s biggest cement producer, posted a 13.5% on-year decline in its first quarter (Q1, April-June) net profit at Rs 673 crore, due to slowdown in home building and infrastructure projects.

The Aditya Birla group company’s Q1 net sales fell 2.2% on-year to Rs 4,958 crore. Net turnover last fiscal rose 10% on-year to Rs 20,018 crore, while net profit stood at Rs 2,655 crore (Rs 2,446 crore the previous fiscal).

Kumar Mangalam Birla (pictured), chairman of the group, said business environment continues to be challenging. “Despite adverse market conditions, the company has done well. We foresee cement demand growth to be about 6% this fiscal. However, it is likely to be over 8% in the long term.”

Addressing shareholders at UltraTech’s 13th annual general meeting, Birla said last week’s Holcim-Ambuja-ACC will not intensify competition. For, Ambuja-ACC can together produce 58 million tonne per annum (mtpa) while UltraTech’s capacity is just a tad lower at 53.90 mtpa, including 3 mtpa overseas.

UltraTech’s CFO K C Birla said while April and May saw a 5.8% growth in demand, June saw only  around 1% growth.

UltraTech has earmarked Rs 13,700 crore for capital expenditure (capex) this fiscal, to be funded through internal accruals and debt in equal proportion. It also allocated Rs 2,100 crore for setting up grinding units, ready mix concrete plants and for modernisation. The company plans to increase cement manufacturing capacity by 10 million tonne to 64.45 million tonne by 2015.

Subscriptions, Arpu lift Dish TV revenues

This story first appeared in DNA Money edition on Saturday, July 27, 2013.

Dish TV, India’s leading direct-to-home (DTH) service provider, reported an 11.2% on-year increase in standalone operating revenues at Rs 578.4 crore for the first quarter as subscription revenues grew 15.9% to Rs 528 crore and average revenue per user (Arpu) rose 5.1% to Rs 165 a month.

Subhash Chandra, chairman, Dish TV India Ltd, said the company’s focus on quality additions is a counter-intuitive move, which has started delivering encouraging results. “The first quarter saw the company deliver strong free cash flows while maintaining healthy customer retention and investing in brand equity.”

With 0.2 million subscriber additions at the end of the June quarter, the company’s subscriber addition cost was down from Rs 1,996 to Rs 1,828 on a sequential basis. Earnings before interest, tax, depreciation and amortisation at Rs 121.7 crore was marginally higher than the previous quarter, while Ebitda margin for quarter stood at 21%.

Jawahar Goel, MD, Dish TV, said business performance was in line with expectations and that hike in pack prices and improved subscriber quality in the recent months resulted in a strengthened Arpu.

At Rs 30.4 crore, Dish TV narrowed down losses both year-on-year (Rs 32.3 crore) and sequentially (Rs 43.6 crore).

R C Venkateish, CEO, Dish TV India, pointed out that the business requires continued capital expenditure. “The most important matrix that shows the health of the organisation is the free cash flow and we are focused on getting that matrix in shape. And if you look at the whole of last year we generated Rs 65 crore in FCF and the number is Rs 48.4 crore in the first quarter of the current fiscal itself. And this is without sacrificing any growth numbers as we are growing over 6% quarter-on-quarter,” he said.

On Dish TV’s overseas ventures, Goel said, “Work on Dish TV Lanka (Pvt) Ltd, the company’s subsidiary, is progressing as per plan. Since it is going to be a zero subsidy model, it makes us all the more excited about the expansion.”

Focusing on strengthening the balance sheet, the Dish TV management is looking to retire a significant portion of its outstanding debt. The company, through its internal accruals, will look to repay approximately Rs 750 crore of outstanding debt through the current fiscal.

The analyst community has given a huge thumbs-up to the stock with the majority having a ‘buy’ call.

Raw deal for minority shareholders in Holcim deal

This story first appeared in DNA Money edition on Friday, July 26, 2013.

Stock market analysts’ verdict on Wednesday’s Ambuja-ACC-Holcim restructuring is emphatic that the deal offers no significant near-term benefits to minority shareholders.

Downgraded by several brokerages, the Ambuja Cements stock fell almost 15% in intra-day trade in Mumbai on Thursday, before recovering a bit to close at Rs 171, down 10.52%. ACC, too, fell and ended at Rs 1,194.10 (down 3%).

Investors did not seem to like Ambuja’s plan to buy a 50% stake in ACC from its parent Holcim at what could prove a significant premium, given the Rs 14,660 crore value of the cash-and-equity deal (which would also raise Holcim’s stake in Ambuja to 61.39% from 50.55%).

Out of 24 brokerages polled by Bloomberg, as many as 13 stamped a ‘sell’ call on the Ambuja stock; four brokerages advised investors to ‘hold’; two each were ‘neutral’ and ‘underweight’; while one each issued ‘underperform’ and ‘outperform’ ratings.

Chockalingam Narayanan and Manish Saxena, research analysts at Deutsche Bank, said in their report that Holcim has effectively shifted its stake in its India business by gaining a greater proportion of a more profitable business and Rs 3,500 crore in cash. “Our calculation suggests that at the current market price, the loss for minority shareholders of Ambuja may vary between Rs 400 crore to Rs 500 crore from this transaction.”  Their report issued a ‘sell’ call on both Ambuja and ACC stocks.

Holcim has restricted minority shareholders’ choice by using Ambuja’s cash for ACC’s stake, said Anubhav Aggarwal and Chunky Shah, research analysts with Credit Suisse.

“The cash could have been used alternatively for a buyback. Additionally, Ambuja has committed to acquire an additional 10% stake in ACC over 24 months. In our view, this will convert Ambuja into a net debt company; and from a Holcim perspective, it will be an idle structure as ACC plus Ambuja will be neutral on cash on a consolidated basis and shield Holcim from further rupee depreciation,” they said in a report.

Experts feel that Holcim is the only beneficiary of the proposed restructuring as it stands to pocket $600 million in cash whereas in the old structure, it was entitled to only 50% of Ambuja cash. The cash will help Holcim to reduce its net debt and maintain its investment grade rating, which is essential for keeping its interest costs low.

Calling it a one-sided transaction, Nitin Bhasin and Achint Bhagat, research analysts at Ambit Capital, said Ambuja’s acquisition of ACC will have no meaningful benefits except to Holcim. “This rearrangement does not suggest any value creation for either Ambuja or ACC shareholders and at best is value-neutral for Ambuja’s shareholders, considering the synergies. Holcim benefits by receiving Rs 3,500 crore without sharing any cash with minority shareholders,” said the analysts.

The proposed transaction at current market price (CMP) for both entities implies a valuation of $110 per tonne for ACC. Ankur Kulshrestha, research analyst, HDFC Securities, said that despite inexpensive valuation, majority shareholders of both ACC and Ambuja would end up losing in the deal. “We are very sceptical of the synergies (Rs 900 crore in cost savings over two years) being talked about,” Kulshrestha said in his report.

The primary cause for concern, analysts said, is that Ambuja chose to pay moderate dividends (35-40% payout) over the last few years without reinvesting for growth. And the company is now paying the price by losing market share. “We wonder why this transaction did not involve only shares or why the cash was also not distributed to minority shareholders,” the Ambit Capital analysts noted in their report.

Analysts said there are concerns about reinvestment highlighted by Holcim. For instance, Ambuja has not been reinvesting in capacity expansions despite its large cash pile. It invested capex of Rs 2,000 crore over the last three years and added only 2 million tonne of grinding capacity alongside maintenance capex.

Zee net up 43% on strong ad, subscription revenues

This story first appeared in DNA Money edition on Friday, Jul 26, 2013.

Zee Entertainment Enterprises on Thursday reported a 42.6% year-on-year growth in net profit at Rs 223.9 crore for the quarter ended June as advertising and subscription revenues surged.

Advertising and subscription revenues were up 18.5% and 16.5% at Rs 530.1 crore and Rs 424.1 crore, respectively.

Subhash Chandra, chairman, Zee Group, said the company’s performance reflects the investments it is making to grow its business and market share.

“This has been accompanied by a strong improvement in the operating performance of the company during the quarter,” he said.

Operating profit, or earnings before interest, tax, depreciation and amortisation (Ebitda), for the quarter rose 25% to Rs 291.5 crore, riding on a 15.5% jump in consolidated operating revenues to Rs 973.3 crore. The Ebitda and PAT margins stood at 29.9% and 23%, respectively.

Chandra said Zee continues to build its media assets despite being in a highly competitive space and in the process creates value for shareholders. “We have a strong balance sheet and I am confident that we would take advantage of the growth opportunities ahead of us.”

On the overall media and entertainment industry scenario, Puneet Goenka, MD and CEO, Zee Entertainment, said the fiscal has started with a good quarter both on operating and financial parameters. “These are exciting times and we are witnessing a lot of changes in the industry landscape. The phased implementation of Trai’s regulation with respect to advertising inventory on a clock-hour basis has started and is expected to be fully in place by the end of second quarter,” he said.

On the corporate side, Zee shareholders passed a special resolution approving enhancement of foreign institutional investor investments limit in the company beyond the current limit of 49% up to the maximum sectoral limit allowed under applicable foreign direct investment regulations.

Wockhardt tanks after FDA, downgrades hit

This story first appeared in DNA Money edition on Thursday, Jul 25, 2013.

Pharma major Wockhardt’s shares tanked 20% to Rs 660.90 on BSE on Wednesday as some brokerages downgraded the stock in response to manufacturing quality concerns expressed by foreign regulators.

Wednesday’s nosedive marks an extension of the recent downtrend in Wockhardt’s shares. Over the last three months, the stock underwent a massive correction of 65.44% from the high of Rs 1,912.3 on April 25.

The hammering on the bourses has eroded investors’ wealth by a whopping Rs 13,767 crore: from Rs 21,038 crore on April 25, it is now down to Rs 7,271 crore.

Trouble came from a series of import alerts and warnings from overseas regulators such as the US Food and Drug Administration (FDA) and the UK Medicines and Healthcare Products Regulatory Agency (MHRA) about Wockhardt’s Waluj manufacturing facility in Aurangabad, Maharashtra.

Last week, the FDA followed up its May import alert to the Waluj unit with a warning. Wockhardt said the warning is merely a formal communication, and kept its earlier estimate of $100 million impact on sales this fiscal unchanged.

But the road ahead is likely to get tougher for the Habil Khorakiwala-promoted drug-maker, market observers said.

A  review of the FDA warning of July 18 suggests that Wockhardt’s Waluj unit has been charged with six grave violations of current good manufacturing practices (CGMP) for finished pharmaceuticals.

The FDA alleged that Wockhardt officials not only withheld truthful information but delayed and limited its inspection. Worse, Wockhardt’s response to clarifications sought were not satisfactory, the FDA said.

Wockhardt has time till the first week of August to notify the FDA of the specific steps taken to correct and prevent recurrence of CGMP violations.

Murtaza Khorakiwala, MD of Wockhardt, said the company has already initiated the process of taking corrective measures, including appointment of a leading US-based consultant for its Waluj facility. “The consultant has extensive experience and expertise in CGMP and will work with the Wockhardt team to address issues raised by the FDA,” he said.

ACC becomes Ambuja Cements arm

This story first appeared in DNA Money edition on Thursday, July 25, 2013.

In an inter-group restructuring move, Switzerland-based Holcim Ltd is increasing its holding in Ambuja Cements to 61.39% from 50.55%.

In turn, Ambuja Cements will acquire its holding company Holcim India Pvt Ltd’s 50.01 stake in ACC Ltd.

In a two-step transaction, Ambuja Cements will acquire 24% stake in Holcim India from Holderind Investments Ltd, Mauritius (Holcim) for a cash consideration of Rs 3,500 crore. This will be followed by a merger of Holcim India into Ambuja and as consideration for the merger, Ambuja will issue 58.4 crore new equity shares to Holcim at the prevailing market price.

The merger of Holcim India would be in the ratio of one Ambuja Cement share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share.

Ambuja shares closed nearly 3% lower at Rs 191.1 on BSE, while ACC lost 1.16% to Rs 1,231 apiece on Wednesday.

Onne Van Der Weijde, managing director, Ambuja, said the transaction will increase profitability and facilitate more flexible use of capital. “Both companies will significantly benefit from a closer collaboration to be ready to embark on the next phase of growth and optimisation. Together we’ll drive increased realisation of synergy potential and save on costs,” Weijde said in a conference call late on Wednesday.

The synergy potential between Ambuja and ACC is likely to bring in cost savings to the tune of Rs 900 crore through supply chain and fixed cost optimisation.

This will be realised in a phased manner over two years post completion of the transaction.

The total deal value (cash and issue of share) is expected to be Rs 14,660 crore. Funding the cash component will be done through cash on books as payments to Holcim are to be made over a period of nine months.

Post the transaction, Holcim will own all its investments in ACC through Ambuja Cements.

“The transaction is expected to be neutral on Holcim’s EPS in the first full year following the completion of the transaction and accretive thereafter,” said Holcim CEO Bernard Fontana.

Weijde asserted that two companies will continue to function the way they have been in the past. The two brands will be retained and so will be the management team, separate retailer and dealer network.

Ambuja will be looking to increase its stake in ACC within the next three years.
Weijde confirmed that the company has clear intentions of doing so and a proposal to this effect has been approved by the board already.

“We will make commercially reasonable efforts to invest up to Rs 3,000 crore to acquire an economic ownership in ACC of up to 10% without triggering a mandatory open offer,” he said. However, Weijde denied any possibilities of delisting ACC anytime in the near or distant future.

According to Narotam Sekhsaria, non-executive chairman, Ambuja and ACC, “This transaction allows us to capitalise on the prevailing Holcim Group platform, promotes greater co-operation between the group companies, and unlocks significant synergies over time. Investment in the expansion project at Marwar Mundwa is a positive and big next step forward and shows Holcim’s commitment.”

The consolidation will result into a more balanced pan-India footprint with 58 million tpa capacity. Both companies will continue with their expansion plans of over 10 million tpa capacity with additional projects in the pipeline (e.g. ACC Ametha / Tikaria). As part of its long-term commitment in the Indian market, investment will be made by Holcim in Marwar Mundwa project with an overall capacity of 4.5 million tpa in North-Central India.

Ambuja will hold an extra-ordinary general meeting in the December quarter to approve the transaction and will complete the process of merger by mid next year.

Thomas Cook to sell SoBo property

This story first appeared in DNA Money edition on Wednesday, Jul 24, 2013

Travel and tour operator Thomas Cook India (TCIL) has put one of its back office premises at Nariman Point in south Mumbai (nicknamed SoBo for South Bombay) on the block.

The move is part of consolidation of TCIL’s workplaces.

Madhavan Menon, MD of TCIL, said the company consistently optimises and consolidates workplaces. “Given our growth and expansion plans, our Nariman Point back office offers limited scope. Hence our search for alternative space.

This also offers us an opportunity to explore new potential in this domain, including significant new office space in key emerging micro markets in proximity to our customers.”

TCIL declined to share valuation details for its proposed sale.

TCIL’s SoBo premises, fully furnished, with carpet space of 10,591 square feet (958 square metre), and close to the iconic Oberoi and Trident Hotels, will be disposed of on as-is-where-is basis.

As per JLL’s latest monthly real estate monitor, prime Mumbai office space could cost anywhere between Rs 21,000 and Rs 30,000 per sq foot, much costlier than similar spaces in cities like Hyderabad where the going rate is Rs 5,500-6,000 per sq foot. In Pune, it is Rs 4,750-5,000; in Kolkata, around Rs 18,000; in Delhi, around Rs 31,500.

TCIL’s SoBo back office is likely to fetch anywhere between Rs 23 crore and Rs 32 crore.

TCIL is understood to own around 32 properties or 1.26 lakh square feet (sq ft) of office space across the country. In addition, it reportedly owns over 60,000 sq ft and 43,000 sq ft in Mumbai and Delhi, respectively. In fact, the tour operator’s another SoBo property (at Fort) is estimated to be worth up to Rs 250 crore.

In May last year, Fairbridge Capital (Mauritius) had acquired a 76.69% stake in TCIL from its erstwhile UK-based parent. In February this year, TCIL diversified into executive search industry.

L&T earnings down, says road remains challenging

This story first appeared in DNA Money edition on Tuesday, July 23, 2013.

Engineering and construction major Larsen & Toubro’s (L&T’s) first quarter (Q1, April-June) net profit declined 12% on-year to Rs 756 crore but revenue grew 5% to Rs 12,555 crore while operating profit margin declined 0.6% to 8.5%.

But the firm’s MD and CEO K Venkataramanan struck a note of optimism that L&T retains its ability to undertake and deliver projects in a way that adds to shareholder value.

Yet, he conceded that “on the ground scenario” in the country is not rosy but full of challenges.

“We are going through the most challenging times...  The government is trying to push some big ticket items primarily in the areas of freight corridor, transmission and roadways.”

R Shankar Raman, CFO, said that opportunities are limited and there is competitive pressure on pricing. “I don’t think you’ll find (now) margin levels reported earlier in 2007-2009...”

L&T management expects to maintain its guidance on Ebitda margins of 11-11.5% for the year. During Q1, order inflow improved 28% to Rs 25,159 crore, increasing the order book size by 8% to Rs 1,65,393 crore.

Analysts tracking L&T said Q1 numbers were lower than expected, hence the stock’s 7.5% dive to Rs 901.95 on BSE on Monday, the biggest drop in nearly four years.

Sanjeev Zarbade, vice-president of the private client group research at Kotak Securities, said the Q1 numbers were disappointing in the short term; however, on a long-term basis, they remain positive.

Viral Shah, senior research analyst - infrastructure, Angel Broking, concurred. But he pointed out that L&T’s numbers were below expectations on both the revenue and profitability fronts. He attributed this to “lower-than-expected execution and poor operating performance”.

However, L&T may benefit from the gradual recovery in the capital expenditure cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to its peers, said Shah.

So, Angel Broking is likely to revise its target price and rating on L&T, said Shah.

L&T officials said the country’s infrastructure industry has not been faring well for a while now due to economic slowdown. Hence, the company has been aggressively pursuing international markets, which helped increase its international order book size by 16% during Q1.

“While international markets have their own challenges, we are making inroads there and the results should be visible in the near future. There is a business opportunity overseas and we will secure our share, thereby insulating ourselves from the India story, which is likely to be a little slow in the next two years,” said Venkataramanan.

Pvt placements in agri biz up 75% in Jan-Jun 2013

This story first appeared in DNA Money edition on Monday, Jul 22, 2013.

A substantially large Indian agricultural market, coupled with increasing activity in the sector, has led to a significant increase in private equity (PE) and venture capital (VC) placements.

Going by data compiled by research service Venture Intelligence, the sector witnessed a 75% year-on-year increase in PE/VC investments during the first six months of this calendar year.

A total of nine agri-business companies raised around $126 million in the first half compared with $72 million raised by six companies in the same period last year.

Agriculture and related businesses comprise the entire value chain, encompassing foods, agriculture produce, seeds, fertilisers, agri-technology and agri-infrastructure.

Industry experts feel businesses addressing the bottom of the pyramid offer a great opportunity for focused investment firms.

“Investing in agriculture and related businesses fit perfectly into their investment theme,” said a top official with an international transaction advisory.

The largest PE investment in the industry during 2013 was Multiples Private Equity’s Rs 250 crore ($43.24 million) investment in Bangalore-based Milltec Group, which develops technology and machinery for rice milling, roller flour milling, maize (corn) milling and agro-processing plants.

Another buyout focused PE firm, India Value Fund, has committed $40 million to pick up a majority stake in Kochi-based spices firm VKL Seasoning. VKL, a spin-off from the Vallabhdas Kanji Group, provides seasonings and flavours to customers, typically quick service restaurants, in India, the Middle East and Africa.

Interestingly, this time around, the agri-business sector also witnessed participation from investment firms based out of the Middle East region.

For instance, in February, Qatar-based Hassad Food acquired 69% stake in PE-backed rice exporter Bush Foods Overseas for around Rs 800 crore ($135 million), giving existing investor StanChart PE a 2.5 times return on its investment.

Similarly, last week, publicly listed rice exporter Kohinoor Foods agreed to sell a 20% stake for almost Rs 113 crore ($18.8 million) to Al Dahra Holdings, an Abu Dhabi-based agriculture focused investment firm.

Arun Natarajan, CEO, Venture Intelligence, said the rising appetite for such companies among overseas investors and also the higher prices being enjoyed by agri commodities in recent years could continue to sustain PE interest in the industry.

Apart from PE buyouts, the latest quarter (ending June) also witnessed VC funds and specialist agri-business focused funds stepping up their investment activity.

Omnivore Partners, an agri-business focused investment fund, announced two new investments in the latest quarter – in pork products firm Arohan Foods and fly trap maker Barrix Agro Sciences.

Additionally, Khyati Foods and Lawrencedale Agroprocessing attracted VC funding during the quarter from SEAF and Sarona Asset Management and Aspada Investments, respectively.