Disney to launch open offer for UTV Software Communications on Jan '16

Global entertainment giant Walt Disney Co said that it will launch am open offer on January 16, 2012 to acquire publicly held shares in BSE-listed UTV Software Communications Ltd (UTV). The open offer is for buying around 30% stake held by minority shareholders for up to Rs 1,000 a share. Once concluded successfully, the US company which currently holds 50.4% in UTV will take it private and delist the firm from the stock exchanges.

Following Walt Disney’s announcement, promoters of UTV Software have mooted another proposal to offer Disney a stake in its gaming subsidiary operating under the banner Indiagames Ltd.

When contacted, UTV officials were not available for a comment. An email sent to company spokesperson soliciting details viz. extent of stake to be offered, its valuation, shareholding post the offer, etc. remained unanswered at the time of going to print.

However, in a notification to the Bombay Stock Exchange (BSE), UTV said, “It is proposed that, in the event the delisting offer by The Walt Disney Company (Southeast Asia) Pte Ltd is successful, the company may assign to Disney or its affiliates its rights to acquire such shares of Indiagames.”

UTV also said that the proposal is subject to execution of necessary documents and compliance with applicable law. As far as Disney’s reaction to this initiative is concerned, UTV said that, “As on the date of this letter, no definitive decision has been taken by the company or Disney in this regard."

Earlier in October 2011, the UTV management had informed the stock exchange about its intentions to acquire 30.02% in Indiagames for Rs 94.56 crore from founder-promoter Vishal Gondal and other employee-shareholders. While the deal has not been concluded as yet, the transaction (once completed) will increase UTV’s holding to 86.02% from the existing 56% in Indiagames Ltd.

While the Indiagames deal with promoter and employee shareholders continues, UTV is simultaneously working on acquiring stakes from other shareholders in the gaming company. According to a report in VCCircle.com, UTV management has struck a deal to buy out Adobe Systems Incorporated’s 6.29% stake in the country’s largest digital gaming company – Indiagames Ltd.

While deal value was not disclosed, the report said that ‘the agreement for sale has already been inked’. It also estimated taking the recent deal as a benchmark that UTV will pay around Rs 20 crore to Adobe to raise its holding to 92.31%. UTV is also understood to be in talks to acquire 7.69% held by Cisco Systems thereby which will make the gaming company its wholly owned arm.

Earlier in October 2011, Disney entered into an agreement to buy out around 20% stake in UTV Software held by the original promoter group that includes Rohinton (Ronny) Screwvala, Unilazer Exports and Management Consultants, Unilazer (Hong Kong) and Zarina Mehta. While these promoters are not expected to participate in the delisting offer, they are likely to exit the firm if the delisting offer is successful.

According to a Reuters report, assuming an exit price of Rs 1,000 per share (Disney has mentioned this as the maximum it is willing to pay), Disney will have to spend over Rs 1,400 crore to buy 29-30 per cent stake held by public shareholders, including convertible securities. With the buyout of the remaining promoters, the overall deal size might be around Rs 2,150 crore at the same share price.

Mahindra Holidays acquires The Retreat by Zuri Goa for Rs 112 crore

Mahindra Holidays & Resorts I Ltd (MHRIL) has acquired a 106 room hotel in Pedda, Salcette, Goa. The hotel was acquired from Bangalore-based The Zuri Group which currently operates four hotels in India - excluding the Pedda property which was earlier operated under the banner The Retreat by Zuri, Goa.

Rajiv Sawhney, managing director, Mahindra Holidays & Resorts I Ltd (MHRIL), said, “While discovering new destinations and placing them on the holidayer’s map has been a strong tradition at Mahindra Holidays, we always aim to ensure that our members can holiday where they want. This launch will significantly augment our capacity in Goa which is one of our most preferred destinations.”

While MHRIL did not disclose the deal value, industry sources confirmed the transaction was closed at a little over Rs 1 crore per key giving The Zuri Group Rs 112 crore from the sale of this asset.

Confirming the sale of the hotel, Bobby Kamani, managing director, Zuri Group Global, said, divesting the property was a planned and strategic decision by the hotel company primarily because the company was over exposed in the leisure destination with two properties. “It was quite an interesting deal that Mahindra made us for The Retreat and it works in our benefit. The money that this deal will bring in will primarily be used for the revamp of our other property - The Zuri Whitesands, Goa Resort and Casino built on a 37 acre beach front land parcel," said Kamani.

this move, Zuri top management said, is in line with the group’s intention of pursuing an aggressive growth for the immediate future. "The decision taken will help reduce debt and completely refurbish the five-star luxury Goa and Kumarakom resorts. More investments will be pumped in to further expand the hospitality basket under Zuri Group Global," said Priti Chand, vice president - corporate communications and public relations for Zuri Group Global.

Post acquisition, MHRIL has re-branded the property as Club Mahindra Emerald Palms resort taking its tally to 336 rooms in South Goa. The Club Mahindra management also said that the Goa hotel was the first of a series of launches in the next six months, whereby several new destinations will be added along with a significant increase in its room count.

DB Hospitality in talks with Sahara to sell Grand Hyatt Hotel in Goa

This story first appeared in DNA Money edition on Thursday, December 22, 2011.

DB Hospitality, a sister company of DB Realty whose promoters have been mired in the 2G scam, is in talks with the Sahara Group to sell its newly launched five-star hotel Grand Hyatt Goa, according to industry sources.

“The deal is currently at the due diligence stage,” said an industry source familiar with the development.

An email sent a week ago, seeking comments, to a Sahara Group spokesperson remained unanswered and when contacted a DB Hospitality spokesperson said, “This is not true.”

But industry sources said the asset owners were demanding a huge premium for the hotel, which opened for guests in August 2011, and as a result the mandate has travelled from one firm to another. It is not clear which firm is finally advising on the deal.

In terms of valuation, sources said DB Hospitality is seeking Rs1,000 crore, which they felt is quite high, especially for a project in Goa.

“Assuming overall development cost of around Rs1.25 crore a key in an ideal situation, the promoters would have invested (including debt) around Rs390 crore for 314-room hotel, excluding the land cost. However, one will also have to factor in the almost a year-long delay, which would have increased the project cost by 15%-20% on a conservative note,” said a top official of one of the big four international property consultants.

“The general market practice with most hotel owners in Mumbai is to value the asset at Rs2 to 2.5 crore per key. However, the per-key figure will certainly be lower in Goa. Based on these assumptions, Rs1,000 crore for a 314-room hotel appears quite steep, that too in such a stressed market environment,” said the official.

Grand Hyatt Goa is not the only asset that DB Group’s hospitality vertical is understood to have put on the block. The group’s Mumbai hotel, managed by Hilton Worldwide, is also up for grabs, sources said.

The promoters are looking to raise Rs450 crore from the sale of this 171-room boutique hotel, which was launched back in 2000 under the Le Royal Meridien brand.

The deal has been doing the rounds in the market for a while now with no potential suitor willing to pay the valuation sought. DB promoters are targeting to raise a total of Rs1,500 crore by divesting the two hotels, sources said.

Nestled in a 28 acre beach front land parcel, the hotel is part of a 140 acre high-end mixed-use development called Aldeia De-Goa and located in Dona Paula in North Goa.

DB Hospitality has four operational hotels and several in pipeline.

Hotel buyers sniff a chance to rake it in

This story first appeared in DNA Money edition on Tuesday, December 20, 2011.

The fairly quick rebound following the economic downturn in 2008-09 had upset all calculations for hospitality asset buyers, who now have a reason to rejoice. A looming double-dip recession means 2012-13 is likely to open another window of opportunity for them to make a killing.

Real estate consultants - both domestic and international - and individual brokers these days are working overtime on mandates involving buying and selling of hotel projects. While the phenomenon, experts said, is quite evident in key metros, the level of activity is quite similar in non-metros as well. And as the sector has already witnessed a handful of deals being concluded in the recent past, there is a feeling that the momentum will pick up in the coming year.

“There is some degree of stress in the market for sure, especially with land parcels and incomplete structures. As for sale of operational hotels is concerned, it is largely in the case of companies with heavily leveraged balance sheets,” said an industry expert.

Companies with high debt on books and those struggling to access capital to start or complete work on their respective projects are taking to divestment seriously. Besides, the not-so-exciting economic environment, which is likely to impact hospitality, travel and tourism sectors in the coming year, has only added to the urgency in sales.

Among hotel assets already in the market for sale are those from leading realty firms like DLF Hotel Holdings, a subsidiary of DLF Ltd, and DB Hospitality, a part of DB Realty. According to sources, there are assets also from companies like Bangalore-based Royal Orchid Hotels (ROHL) and Indore-based mixed-used developer Entertainment World Developers Pvt (EWDPL) which are understood to be seeking buyers for some of their projects.

Similarly, another BSE-listed hotel company Kamat Hotels India (KHIL) is in the process of divesting four of its hotel land parcels - ranging from 2 acres to 40 acres -in cities like Coimbatore, Amravati, Raipur and Nagpur. The assets were earlier in the development pipeline.

Leading international property consultants (IPCs) like Cushman & Wakefield (CW), Ernst & Young (E&Y) and Jones Lang LaSalle Hotels (JLLH), among others, too confirmed the rising flow of mandates for buying and selling of hotel assets across the country. But putting a figure to the number of hotel assets on the block is difficult because each one works on a slew of exclusive mandates and there are non-disclosure agreements in place to protect the identity of the buyer or the seller.

Akshay Kulkarni, executive director - residential services, Cushman & Wakefield, said: “The current activity level is certainly high and I’m confident that the sector will see a good number of transactions getting concluded in 2012-13. In fact, we are working on a few hotel transaction mandates and are likely to close some deals by the first quarter of the next fiscal.”

Deals currently being pursued by the IPCs are a mixed bag of operational hotels, incomplete structures and land parcels earmarked for hotel projects. While cities like Mumbai, Delhi, Bangalore and Chennai are certainly on the radar, others like Pune, Hyderabad, Kerala and Goa are joining the brigade, too. Interestingly, ‘sell’ mandates seem to be on the higher side vis-a-vis ‘buy’, thus making it very challenging for the broking community to find potential buyers.

Talking about the profile of prospective buyers, Chintan Patel, director, real estate and hospitality services, E&Y India, said strategic and financial investors are best suited for land parcels and incomplete structures. “The current market scenario, however, is more opportunistic for high net worth individuals (HNIs) in the case of already operational hotels. In fact, the timing is much better also because of a depreciating rupee,” Patel said. Reasons to sell hotel assets vary for different companies. While DLF is keen to shift focus from non-core assets, for DB Hospitality, the priority is to raise funds to mitigate debt pressure on the books. And as for ROHL and KHIL, ramping up hospitality presence in key metros to access capital is a big driver.

But are valuations realistic for faster closure of deals? A senior consultant with one of the domestic hospitality consultant companies said, “Deals generally take longer to conclude mainly because of valuation issues between the buyer and the seller.”

So, is distress one of the reasons for companies to sell hotel assets? The IPCs feel otherwise. “There is some stress in the market for sure but it certainly has not reached the distress situation. While buyers are not giving high premium, sellers have also become realistic with their expectations. This is why the market has seen a few deals getting concluded in the recent past.

This momentum will only increase next year,” said Patel. Some of the deals that are expected to get concluded include projects from BSE-listed Viceroy Hotels, which is expected to complete the sale transaction of its Chennai hotel and residential projects with Mahal Hotel Pvt and Esteem Housing Developers Pvt, respectively. The deal size reportedly is in the region of Rs500 crore.

Similarly, DLF Hotel Holdings — which recently acquired Hilton’s 26% stake in the JV for Rs120 crore — is rumoured to have sold its four land parcels to Kolkata-based Square Four Housing & Infrastructure Pvt for Rs550 crore.

Rajesh Exports to expand jewellery stores six-fold

This story first appeared in DNA Money edition on Tuesday, December 20, 2011.

Rajesh Exports has embarked on an ambitious expansion of its retail chain ‘Shubh Jewellers’ with a goal to become the largest jewellery retailer in the country.

The BSE-listed jewellery exporter which operates 73 stores in Karnataka is planning to increase it to 550 across the south Indian states in the next three years.

It plans to invest about Rs6,600 crore for the expansion and expects revenues of Rs25,000 crore by 2014.

Siddharth Mehta, chief strategist, Rajesh Exports, said that the company aimed to have 125 stores in Karnataka by April 2012.

“Another 50 stores will be added in Karnataka after which we will expand into Tamil Nadu, Andhra Pradesh, Goa and Kerala. All stores follow a unique franchisee model, wherein established jewellers are brought into the network,” Mehta said. These stores are refurbished according to the Shubh format and require an investment of Rs15-20 lakh from the franchisee, he said, adding that day-to-day management and other operating costs would be taken care of by the franchisee and Rajesh Exports would invest in the inventory at these stores.

“The franchisee’s share in the overall revenues generated from the store is 2.3% of the profit,” he said. The average size of a Shubh store is 500-600 square feet, though the company also has stores that are as small as 300 sq ft going up to 3,000 sq ft.
With a rollout of these 125 stores by April 2012, the company expects to become the largest retail jeweller in the country.

Through the network of 550 stores, the company is eyeing 8% of the domestic retail gold jewellery trade.

For the first half, the company generated Rs650-700 crore sales through 48 stores. “Around 25 stores were added during the Diwali period and hence revenues from those stores haven’t been included in the figure.The net profit from 48 operational stores was in the range of Rs42-45 crore,“ said Mehta.

The expansion would be funded through a mix of internal accruals, external commercial borrowings and credit from suppliers. The company has Rs2,000 crore of internal accruals and is at an advanced stage of negotiations for debt with foreign financial institutions at a rate of Libor + 4.5%. It expects to close the ECB by May-June 2012.

Yummy! Ready-to-eat foods eye centre of thali

My colleague Shailaja Sharma is the lead writer of this story which first appeared in DNA Money edition on Wednesday, December 21, 2011.

Ready-to-eat (RTE) foods are no longer a no-no. Packaged French fries, cheese nuggets, parathas, samosas, aloo tikkis... all are tickling the Indian tastebuds.

The RTE segment is growing at 25-30% annually, say analysts. “It was crawling a few years ago. Now, it has started to walk. The segment will run in a few years,” says Sushil Sawant, vice-president, Godrej Tyson Foods.

Analysts think urbanisation, rise in the number of working women, higher disposable incomes and evolving consumer habits are all making processed foods popular, promising rapid growth for the segment.

Vadilal was among the early movers. In 2000, it began export of ready-to-eat curries, parathas and snacks to 20 countries. Rajesh Gandhi, managing director, says organised retail has expanded with the entry of new players in the last two years. “Indian consumers are ready to try these products.”

Vadilal now sells frozen products like plain and stuffed parathas, samosas, kachoris and springrolls in India under its brand Quick Treat. Given brisk sales, it expects to notch up Rs15 crore from new launches alone this year.

Other players are optimistic, too. Come February 2012, Signature International Foods will launch a range of Indian naans, kulchas and parathas as well as international items like tortilla wraps and pizza bases. Its massive Nashik unit boasts a daily capacity of 1 million chapatis and 5 lakh naans.

Given the Indian consumer’s penchant for good deals, Signature will offer a pack of four naans weighing 80 grams for Rs65, says Gaurang Bhasin, head, sales and marketing.

McCain Foods swears by similar strategy. The Toronto-based firm recently introduced smaller trial packs of its frozen French fries, Super Wedges and Smiles, priced Rs25, after winning customers for its Aloo Tikki, Crunchy Potato Bites, Tandoori Vege Nuggets and Vege Burger.

Other players such as Venky’s India, Temptation Foods and Al Kabeer are keen to garner market-share. Godrej believes frozen foods sales will touch $700 million in four years. “Snacking has always been an integral part of our culture. The snacks industry is getting organised. The opportunity is huge,” says Sawant.

Yet, frozen foods have not reached the centre of the thali (platter) at Indian households. But firms like Godrej and Vadilal, with their strong distribution networks, are seeking to make convenience foods part of Indian lifestyle.

They are confident the task won’t prove daunting , given that over 40% of the household spend is on food. The share of packaged foods may be small, but with a 30% growth, anything is possible.
Industry estimates suggest consumer spend on food in India will grow from $330 billion now to $900 billion by 2020. Processed foods account for $40 billion already, with packaged food market estimated at $10 billion (and likely to reach $20 billion by 2014).

Such heady facts and figures are encouraging processed food firms to bet big on India. For instance, West Coast Fine Foods, a distributor of frozen foods in India and owner of frozen seafood brand Cambay Tiger, is launching Malaysian frozen paratha brand Kawan in India this month.

Rahul Kulkarni, director, marketing, says the time-starved working Indian consumer “is spending less time in the kitchen and is adopting the branded ready-to-heat-and-eat option to suit her lifestyle”.

What does all this signify? “The sign is unmistakable: the urban Indian household is undergoing a quiet revolution. The trend is accelerating because of both socio-economic factors and lifestyle reasons,” says Kulkarni.

India Hospitality ends deal with Entertainment World

This story first appeared in DNA Money edition on Friday, December 9, 2011.

Blank-cheque firm India Hospitality Corp (IHC) has called off a Rs100 crore deal with real estate company Entertainment World Developers Pvt Ltd.

Under the deal, London Stock Exchange’s Alternative Investment Market listed firm was to lease and operate the realtor’s 10 under-development hotels and 14 food and beverage outlets in non-metros.

IHC was to also acquire Treasure Food & Beverage Pvt Ltd, the franchisee for Pizza Hut in central India, from Entertainment World.

IHC was doing the deal through its Indian subsidiary, Gordon House Estate Pvt Ltd, in which Entertainment World was to pick up a 15% stake.

The alliance announced in September 2009 was to be completed in three years. However, there was a buzz in the market sometime back that IHC was reviewing the partnership and now sources have confirmed that the deal has been called off.

"There has been no progress on the deal between IHC and Entertainment World. It has been terminated finally, with both parties free to go their own ways,” said an industry source.

Financial constraint faced by IHC was the key reason for the partnership to be called off, the source added.

Officials from IHC and Phoenix Mills, which owns 42% in Entertainment World Developers, were not available to comment.

The hotels and F&B outlets to be leased and managed by IHC were part of Entertainment World’s 24 million square feet development pipeline across India including 11 shopping malls, 10 hotels and 11 townships.

Entertainment World was developing a total of 900 hotel rooms across 10 locations. The first phase comprised 352 rooms across Nanded, Ujjain, Jabalpur, Bhilai and Raipur, and second phase 548 rooms across Chandigarh, Udaipur, Amravati, Indore and Thiruvanathapuram.

Faced with own set of financial challenges, Entertainment World is understood to be going slow on further developments, including those that were under the deal with IHC, and is currently believed to be undergoing a restructuring exercise to turn around its existing operations.

It was planning raise Rs500-600 crore last year through an initial public offering by selling 25-30% stake mid-2010, but could not because of unfavourable market conditions.

Delays turning hotel breakevens elusive

This story first appeared in DNA Money edition on Tuesday, December 06, 2011.

Delays and cost escalations are set to double the breakeven time for several upcoming upscale hotels in the country, including those of Leelaventure and French Group Accor, which are 2-3 years behind schedule and face a cost overrun of several hundreds of crores.

Several projects that were announced during the boom period in 2006-07, were affected by the economic slowdown of 2008-09 as funding dried and demand fell.

Experts said of every 100 guestrooms being built around 36 are behind schedule, which means only 48,000 guestrooms from the current total pipeline of 75,000 are at various stages of completion and the balance 27,000 are delayed.

Among the notable examples, Shangri-La hotel coming up at High Street Phoenix, Lower Parel, Mumbai and Sofitel at Bandra-Kurla Complex that were scheduled to open in 2009 have been delayed by almost three years and are only expected to receive guests next year. Work on both the hotels had started in 2006.

In case of Sofitel, the delay was because the French hotel group Accor decided to reposition it as a luxury hotel.

“The brand specs were redefined which led to change in the entire development plan. It not only delayed the development but also increased the cost per key from Rs80 lakh to Rs1.2 crore. The overall cost is now pegged at over Rs800 crore,” said an industry source. The total cost of the 302-key hotel was pegged at Rs473 crore. “Taking the cost escalation and the current stressed market scenario into account, the hotel’s breakeven will get extended by another 3-4 years at least,” said the source.

The asset owners could recover their investment in the hotel after 11 years from the time it gets operational as against 5-7 years earlier. Accor is also an investor in the hotel with Shree Naman Group, the asset owner. Michael Issenberg, chairman and chief operating officer, Accor Asia Pacific, recently told DNA that Accor continued to hold 40% stake in the development, which means it has to make further investment to maintain stake.

The over 400-room Shangri-La got delayed mainly because of issues with contractors. However, work resumed post hiring of new contractors late last year by the asset owner, Pallazzio Hotel and Leisure Ltd, a subsidiary of Phoenix Mills, and the property is now expected to be soft launched by April and a full-fledged opening by September.

The overall cost of the project as per 2010 timeline was estimated to be around Rs700 crore. A recent report by brokerage Edelweiss Securities has now pegged it at Rs835 crore. “The breakeven situation with Shangri-La is more or less similar to the Sofitel at BKC. I certainly don’t see it breaking even in the normal 5-7 years,” said top industry official.

Among the other hotels that have got delayed include the 250-room Ritz Carlton in Bangalore, being built by Nitesh Estates. The initial cost projection in 2007 was Rs450 crore, which has now risen to `700 crore. Industry experts feel the delay and cost escalation has been so severe that it may not be a viable project for the asset owner anymore.

Hotel Leelaventure’s hotel in Delhi also faced minor delays but it has its own challenges related to cost escalation. The Delhi market has seen a fairly good supply of hotels as a result the average room rate there is severely under pressure. The market scenario is expected to remain more or less the same for a while now and impact the breakeven of the hotel, a source said. The group’s Chennai hotel has been delayed by almost two years and is likely to open mid-next year.

Work on Emaar MGF’s JW Marriott hotel in Delhi, too, has been stalled for a while now with no updates on its resumption.

Experts say while a delay of few months is manageable, projects that deviate two years or more from their schedules affect profitability drastically and even make the project unviable.

Siddharth Thaker, managing partner, Prognosis Global Consulting, a hospitality advisory firm, said. “Breakeven is a function of how much leverage you have on the project. A delayed project inflates the interest component on the debt. The entire pressure is met through the operating cash flows of the hotel.”

The other factor is that the hotel misses the business cycle as the entire market dynamics changes, particularly the supply-demand situation, Thaker said.

Concept Hospitality to add over 650 guestrooms in 2012-13

Focusing on the five-star accommodation segment, Lighthouse Fund-backed Concept Hospitality Pvt Ltd (CHPL) will add over 650 guest rooms in the financial year 2012-13. A pure play hotel management firm, Concept has lined up a slew of launches across cities like Mumbai, Chennai, Chandigarh and Tejpur (Assam). CHPL’s current development pipeline includes 15 hotels across metros, tier II and III cities in the country of which the management expects 8 hotels to be operational by March 2013.

Param Kannampilly, chairman and managing director, CHPL, said, the company added a little over 500 guest rooms in the last 12-odd months taking the total number managed guestrooms to 1,207 across 20 hotels. “The next 12-16 months will see 8 new hotels getting operational adding approximately 660 guestrooms. All the new hotels will be five-star carrying The Fern flag. Among the new launches, five properties will be launched in the city of Chennai and will also mark our foray there,” he said.

The company – on a collective basis – is targeting a turnover of Rs 200 crore for the current fiscal of which Rs 65 crore has been achieved in the first half already. “We are currently in the business season and will enter the peak season in a few weeks from now. We are very much on track to achieve the Rs 200 crore turnover target in this fiscal as against Rs 120 crore in the previous financial year,” he said. On an entity level, CHPL (as a management company receiving management fees and other revenues) will register a turnover in excess of Rs 12 crore.

Managing hotels under The Fern, The Fern Residency and Beacon brands, CHPL will opened four 'ecotel' hotels in the five-star segment adding over 300 guest rooms under its flagship 'The Fern' brand across key metros and mini-metros in the country.

In Mumbai, the hotel management company opened Hiranandani Group’s second ecotel project the 141-rooms, Meluha - The Fern at Powai in March 2011. The first one – Rodas - an Ecotel hotel – also in Powai is managed by Concept as well. The company also manages a 35-room boutique hotel at Bandra called Grand Residency. Another 75-room hotel is currently in the final stages of completion and will come up in Chembur early next year and will be branded as The Fern Residency. The company’s fifth hotel in Mumbai is currently under development in Goregaon and is likely to start receiving guests sometime in 2014. “Going by the letter of intends (LoI) we have signed already Mumbai and Chennai will be two cities with five hotels each,” he said.

Elaborating on the funding for new developments, Kannampilly said, investment for all the hotels will be done by the respective asset owning companies with Concept coming in as a branding, operating and management partner. On an average, the cost per key for The Fern hotels ranges between Rs 55 to Rs 65 lakh excluding land and financing costs. In the three- and four-star categories, CHPL manages hotels under 'The Fern Residency' brand. The average cost per room for this category of hotels is Rs 25 lakh excluding land and financing costs.

The company is actively pursuing management contracts in the international markets and is currently in discussion with hotel asset developers in countries like Bangladesh, Tanzania and South Africa. While in Tanzania CHPL is mulling an eco village cum city-based resort project, it will be a management contract initially in Bangladesh followed by a joint venture with the same developer to manege eco-friendly hotels there. As for South Africa, the company is doing a management contract for a four-star hotel in the outskirts of Johannesburg.

DLF acquires Hilton's 26% stake in hotels JV for Rs 120 cr

DLF acquires Hilton's 26% stake in hotels JV for Rs 120 cr

DLF Ltd has acquired 26% stake held by Hilton in its joint venture company DLF Hotels & Hospitality Ltd (DHHL) for Rs 120 crore. The stake was acquired by DLF's wholly owned subsidiary (WoS) DLF Hotel Holdings Ltd which had 74% in the JV and the balance was held by Aro Participation Ltd and Splendid Property Co Ltd, affiliates of Hilton International Co.

The joint venture was instituted back in 2006-7 to set up a chain of hotels across the country. However, the realtor had to shelve plans because of the economic downturn in 2008 which impacted a host of real estate companies.

Confirming the development, a Hilton Worldwide spokesperson said, “DLF Ltd (DLF) has bought the 26% shareholding of Hilton Worldwide in the Hilton-DLF joint venture company. We value our relationship with DLF, and our association will continue with our managing the DLF-owned Hilton Garden Inn brand hotel in Saket, New Delhi. The hotel has performed very well and has won several awards including the prestigious HVS award for hotel of the year at the Hotel Investment Conference – South Asia in 2010.”

The DLF-Hilton JV was to build a chain of hilton branded hotels across the country over a period of 5-7 years from instituting the company. As per the arrangement Hilton was to invest up to $143 million in the 75-odd hotel developments to be undertaken by the JV company.

However, with this transaction getting concluded, DLF Hotels now becomes a wholly owned subsidiary of DHHL. DLF spokesperson when contacted confirmed the deal value to be Rs 120 crore and that the joint venture currently has 4 hotels sites one each in Kolkata, Chennai, Trivandrum and NCR.

"The transaction has been done to take complete ownership of the company and its underlying assets including unbuilt hotel sites with a view to monetize them. This is part of DLF's ongoing strategy to divest non-core assets," said the spokesperson.

ITC set for international foray with luxury hotel in Colombo

Cigarette to hospitality company ITC Ltd is set to enter the international hospitality market with a luxury hotel in the capital city of Sri Lanka, Colombo. The Indian hospitality major is currently in the last leg of discussions with Sri Lankan government and expects the deal to get sealed very soon.

ITC Hotels’ spokesperson confirmed the development saying final details are still being worked out. “All I can say at present is that details about the land parcel, investment, brand, guestroom inventory etc are being discussed,” he said. The project will be developed as a green hotel.

Quoting Sri Lankan government sources, a PTI report said that the ITC is likely to invest Rs 1,544 crore ($300 million) for the said project. The government has approved a $300 million foreign direct investment (FDI) enabling the hotel to be built on 5 acre land parcel located in close proximity to military headquarters in Colombo's famous Galle Face landmark beachfront on a 99-year lease, said the PTI report.

“ITC is a reputed hotel investment group in India, with investments and hotel in India. The government hopes that its presence in Sri Lanka will be a significant contribution toward promoting FDI and the tourism industry in the country,” said the Sri Lankan government information department.

The report further added that the Board of Investment of Sri Lanka will enter a Memorandum of Understanding (MoU) with ITC Hotels enabling the firm to execute the project under concessionary tax terms with permitted exemptions on investments.

The land parcel in discussion was earlier allocated to China Aviation Technology Import Export Corporation (CATIC) for $73.5 million for a hotel project. However, the Chinese firm later withdrew and the Sri Lankan government is in the process of reimbursing $54.4 million dollars already paid by CATIC for the lease of land.

Also Read: ITC will manage third-party hotels...

IndiaReit Fund to exit 2-3 investments in 2012

An edited version of this story first appeared in DNA Money edition on Friday, December 02. 2011.

Come 2012 and IndiaReit Fund, a subsidiary of Piramal Healthcare Ltd, will be looking to exit from 2-3 investments made from its developments funds till date. The exits are expected to give the real estate focused investment firm between Rs 450 to Rs 500 crore. The firm will also look to make a couple of new investments with some of their existing partner companies.

Ramesh T Jogani, managing director and chief executive officer, IndiaReit Fund Advisors Pvt Ltd, said, “We are talking on exits with all our investments but there is nothing that will happen in the next one or two months. It will take a couple of quarters for a few deals to conclude because when you talk to four people one might get active and eventually fructify,” he said without giving specific details.

Jogani said that since exits cannot be planned, the management basically works towards building on their entry point. “We have made enough exits from all our funds and when the time is right we take the exit call. The preferred route is selling back to the developer (buyback), exits through third-party or a real estate fund,” he added.

IndiaReit currently manages a corpus of over $900 million, spread across four funds (three domestic funds and one offshore fund), besides the AIM-listed Trinity Capital Plc. The investment firm recently invested Rs 200 crore in Mumbai-based Omkar Realtors’ mixed-use development at Mumbai’s premium location i.e. Worli. The investment was made from its Rs930 crore Domestic Fund IV.

Elucidating their approach to investing in current market scenario when investing in real estate is not concerned as smartest of the moves, Jogani, said that as a rule an investor must invest when times are not very good. “This is because you can get good opportunities. Investing into Omkar’s special purpose vehicle for the Worli development falls in this category and makes for a very good investment. Besides offering a prime location for development, we also have a very lucrative entry point with this investment. If we launch it at the right price, there is enough demand and the market will lap it up. I think liquidity is not an issue in Mumbai but affordability certainly is. We have worked out the affordability level and worked backwards before making this investment,” he said.

While the investment in Omkar SPV doesn’t give IndiaReit a stake it gives them preferred returns and a percentage on upside. “We have invested Rs 200 crore and if everything goes as per plans we should get 2.2x in terms of money multiple post tax,” he said.

The investment firm recently launched an Rs500 crore rental yield fund with a green shoe option of Rs250 crore. An offshore fund it will have a life of 6 years and money will be raised through high net worth individuals, particularly the non-resident Indians (NRIs) from Dubai, Middle East and Singapore. “It will be placed through leading players like ICICI and HDFC with a minimum investment of $100,000. An internal research was conducted to study the investor appetite and we found there was enough excitement in the investor community especially with rupee depreciating against the dollar. We have just started the road show and will take 5-6 months to close the entire fund raise,” said Jogani.

In terms of investment pipeline, the firm has been largely focusing is on five cities namely Mumbai, NCR, Pune, Bangalore and Chennai. It was also looking at the Hyderabad but since the real estate scenario there isn’t looking very good owing to political issue, oversupply in residential and commercial space the management has now de-focused from further developments there.

The firm is currently working with 9 partners however is not restricted to any opportunities outside these set of companies. The activity is largely in the residential and commercial segment and the investment sweet-spot is Rs70 – Rs80 crore in Tier II markets while it is Rs 200 crore in cities like Mumbai as properties are more expensive.

“Our chief reason to invest in a project is our lucrative entry point such that even if market falls beyond a certain point we do not loose money. For example if Rs100 is the selling price, I’ll remove Rs30 as construction expenditure so we are left with Rs70 and my entry price will be anything between Rs25 to Rs30. This approach allows us to make at least 2x returns from day one from any of our investments. If the markets go bad it could come down to 1x but if the markets improve we could get a return of 3x – unfortunately no one has seen that kind of returns (3x) in the last five years though,” he said.

Between the four funds, IndiaReit currently manages Rs 3,000 crore out of which Rs 350 crore is yet to be deployed. The Rental yield fund will add Rs 750 crore taking the available cash for investments to Rs 1,100 crore odd in calendar year 2012. “It is decent enough corpus to meet our investment activity for the coming year. Besides, fund raising is an annual affair for us so we may look to raise another one sometime next year,” he said.

IndiaReit’s current investment portfolio comprises 7 investments with a commitment of Rs620 crore across residential, commercial and hospitality projects. Seven investments with a commitment of Rs 290 core in Bangalore for residential projects. In the Hyderabad market, it has committed Rs 300 crore across 5 investments developing residential and integrated townships, 2 investments in Pune with a commitment of Rs350 core for residential and integrated townships, 1 investment of Rs24 crore in Chennai for residential project and Rs 20 crore for another residential development in NCR.

Reliance MediaWorks partners VenSat Tech for Chennai VFX studio

Anil Ambani-led film and entertainment services company Reliance MediaWorks Ltd (RMWL) has got into a strategic alliance with VenSat Tech Services to expand its visual effects (VFX), computer graphics (CG) and animation capabilities the country. As part of the arrangement VenSat will also set up a studio in Chennai dedicated exclusively for VFX, CG and animation projects allied with RMWL for Indian films.

Anil Arjun, chief executive officer, RMWL, termed the alliance as a strategic win for the company in many ways. “The alliance augurs well with our market positioning as an end-to-end service providers to the Indian media and entertainment inducts wherein VenSat gives us direct presence in Chennai enabling us to strengthen reach in the southern film market. This apart, their creative and technical expertise adds depth to our existing capabilities to execute projects in the Indian film market,” said Arjun.

As part of the arrangement, one of VenSat’s co-founders Venkatesh Roddam will take over a new role and join RMWL’s management as CEO of its entire film and media services division based out of RMWL’s Los Angeles office in the US. The alliance with VenSat is RMWL’s second initiative to beef up presence in south India media and entertainment market. Earlier, towards October end this year, the company had taken over management of Hyderabad-based Annapurna Studios, which is owned by veteran Telugu actor Akkineni Nageswar Rao’s family.

While financial details related to setting up of the new facility in Chennai were not disclosed, RMWL official said that VenSat already operates with over 200 artists from a studio spread across 14,680 square foot at Ascendas IT park in Chennai . The new dedicated studio will be carved out from the existing space and will house a team of 50-odd artists who will work exclusively on Indian film projects bagged by the alliance. Adding the Chennai facility will further enhance RMWL’s present strength of over 1000 artists between its Mumbai and London studios that handle domestic and international projects respectively.

Not restricting the services to just south film industry, the alliance will tap film projects from across the country thereby gaining a significant pie of the film and entertainment services business in the country. The size of animation, VFX and post production industry, according to KPMG, was pegged to be at Rs 2,360 crore in 2010 and witnessed a growth of 17.5% as compared to 2009. Industry experts envisage the growth momentum in this sector to continue in the coming years with a cumulative annual growth rate (CAGR) of 18.5% to reach Rs 5,590 crore by 2015.

In terms of value-proposition the alliance will offer its clients vis-a-vis existing competition in the market, Satyanarayana Mudunuri, executive director and co-founder VenSat Tech Services Pvt Ltd, said that competition continues to intensify both domestically and around the globe.

“The market situation calls for identifying key competitive advantages and focus on core competencies. Developing and harnessing the right competitive advantage will greatly improve our chances for success in getting new projects. We (RMWL-VenSat) will be able to leverage and complement out combined strengths and competencies to create meaningful synergies that would augment the market place. There are a few players in the industry but a strategic alliance as this will certainly bring great value to customers,” said Mudunuri.

VenSat, co-founded by Satyanarayana Mudunuri and Venkatesh Roddam in 2009, is a global provider of creative services for the international motion picture, television, home entertainment, gaming and mobile entertainment markets. Among some of its big budget projects include high grossing films namely Dabangg, Robo, Bodyguard and Ra.One.

Dalits will benefit the most from FDI in retail, says Dalit Indian Chamber

While chief minister of Uttar Pradesh Mayawati feels foreign direct investment (FDI) in retail will drastically impact livelihoods of the dalit section of the society, representatives from the community feel otherwise.

Speaking at a Confederation of Indian Industry (CII) discussion on FDI in retail, Milind Kamble, chairman, Dalit Indian Chamber of Commerce & Industry (DICCI), said, on the ground level, the schedule castes (SC) and schedule tribes (ST) will benefit the most with this move by the government.

“Approximately 8 million new job opportunities will get generated in the next 10 years and a significant percentage of the requirement will be for semi-skilled work force. This is a huge opportunity for the dalit youth who have not been able to pursue education beyond 10th and 12th standard. With short-term training programmes with assured placement being offered by most retail chains the dalit youth will be able to get gainful employment in these retail stores as well as other support areas including logistics firms,” said Kamble.

The dalit entrepreneurs are also set to benefit from the local sourcing clause which is one of the caveats for approving FDI in retail. “Of the overall sourcing by the retailers, 30% will have to be sourced locally of which around 4% will have to be from companies run by dalit entrepreneurs. This is again a very good move by the government and will work towards development and growth of the community,” said Kamble.

Rupa Mehta, chairperson, CII (WR) Family Business Task Force, said, previous experience has shown that good small and medium enterprises (SMEs) have survived and prospered well that too in face of competition. “I do not see any reason to change this optimism. Despite concerns about small kirana shops getting impacted leading to closure, not a single store had shut down in the past five years when modern retail grew to 7% from 2%. I firmly believe that Kirana stores today will innovate and change their complexion, but not go out of business. With this policy decision, Indian SMEs will get opportunities not only in Indian supply chain but also access perhaps to global markets,” she said.

Echoing the sentiments, Thomas Varghese, chairman, CII National Retail Committee and  CEO, Aditya Birla Retail, said, mom and pop kirana stores will shut down but not because of FDI in retail. “They shutting down because their new generation is not very keen on running kirana stores and wants to explore more lucrative job opportunities that go with the current market scenario,” said Varghese.

Satish Jamdar, vice-chairman, CII Maharashtra State Council and managing director, Blue Star Ltd, said the policy on FDI in retail is the right one and in the large interest of the country. “We recognise that there are some concerns, but it is time to cut through the hype and examine and address those concerns. On the whole, we feel FDI in retail will bring in choice, quality and price benefits to the consumer while providing growth opportunities especially to the farming and manufacturing sectors. Also today the service industry is a large generator of employment. Of the service industry, retail industry will potentially be the largest employer, if we factor in the back end infrastructure support. Consumers have benefited from the modern trade so far and FDI in retail will act as hedge against inflation,” he said.

Rating agency Crisil feels foreign retailers are unlikely to gain a dominant share over the next five years and that foreign direct investment (FDI) in multi-brand retail will stimulate investment in Indian retail sector. According to Crisil estimates FDI inflows of $2.5–3 billion over the next five years is modest in the context of overall FDI inflows of $160 billion in India over the past five years.

While food and grocery (F&G) vertical would attract a larger share of the likely FDI inflows, the clause specifying 50% investment in back-end infrastructure especially aligns with the commercial requirement in this segment. F&G accounts for two-thirds of Indian retail sales, but currently has organised retail sales of only around 2%, the lowest among retail verticals.

Ajay D’Souza, head, Crisil Research, said, “To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale. Every percentage point reduction in supply chain cost and resultant gain in earnings before interest, taxes, depreciation and amortisation (EBITDA) margin can improve equity internal rate of returns (IRR) of an F&G store by 250-300 basis points. Foreign retailers, with their access to capital and technology, are well placed to leverage this opportunity.”

French group Accor to open 12 hotels next year

This story first appeared in DNA Money edition on Thursday, November 17, 2011.

French hospitality major Accor is all set to more than double the number of its hotels and guestrooms in the Indian market by December 2012. It will open 12 hotels next year, adding 2,516 guest rooms to the existing 2,016 across 10 hotels in the country.

Accor will also debut three new brands— Sofitel, Pullman and Formule 1 — taking the number of operational brands in India to six from three (Novotel, Mercure and Ibis) earlier.

Michael Issenberg, chairman and chief operating officer, Accor Asia Pacific, told DNA, “Our first Sofitel branded hotel will open for guests next month in Mumbai. The 302-room hotel would be located at the Bandra Kurla Complex. Early 2012 will see another two brands — Pullman and Formule 1 — make their debut in Gurgaon and Greater Noida, respectively.”

The new openings include Formule 1 (3 hotels), Ibis (5), Novotel (2), and one each under Pullman and Sofitel brands. These would be a mix of owned and managed properties as well as pure management contracts with different asset owners.

Accor’s hotel pipeline till 2015 includes four Pullman, 14 Novotel, five Mercure and 12 Formule 1 hotels. “Our plan is to have 90 hotels across our brands in India by 2015. While we are emphasising on the mid and economy segments, efforts are being made to expand in the upscale segment as well,” said
Issenberg.

The Sofitel Mumbai hotel is being developed in partnership with city-based realtor Shree Naman Group wherein Accor has invested $16 million (Rs71 crore) for a 40% stake. Work on the hotel started in November 2006 and was scheduled to open in 2009.

The total cost of the project then envisaged was Rs473 crore. While the two year delay has shot up the project cost, Accor officials said their holding in the asset remained at 40%.

Two more Sofitel hotels in the pipeline though details have not been yet made public.

The Pullman Gurgaon Central Park project is a pure management contract with Delhi-based realtor Central Park, which is also developing a four-star hotel at the Delhi International Airport Aerocity Project.

All the Formule 1 hotels in the pipeline (12 hotels by 2015) would be owned and managed by Accor.

“The Formule 1 hotels are positioned at the economy segment carrying the sub-Rs2,000 price tag for a night’s stay. These hotels will largely compete with brands like Ginger and offer limited services. The food and beverage facility in these hotels will be outsourced to third-party firms,” said Issenberg. Accor formed a joint venture with InterGlobe Enterprises in 2004 to set up 15 Ibis hotels with 2,700 rooms at an investment of Rs805 crore by 2007.

Currently, there are four Ibis hotels operational in the country with another five to open in 2012.

Phoenix Mills cutting down frills, takes over arms

This story first appeared in DNA Money edition on Wednesday, November 16, 2011.

Multi-use integrated property developer, Phoenix Mills (PML), has set out to cut down the clutter. As part of its business restructuring exercise, the BSE-listed company is looking to acquire controlling stakes in its subsidiaries before merging them. The idea is simple: to keep the number of arms to a minimum and avoid complications in financial reporting.

On Monday, PML said it has acquired a controlling stake in Market City Management Pvt (MANCO) from Entertainment World Developers (EWDPL) and Big Apple Real Estate Development Pvt Pradumna Kanodia, director-finance, PML, said the company will be looking to merge some of the other wholly owned subsidiaries (WoS) with MANCO.

“It is a small company with a 40% holding and has been acquired at book value of Rs 6 lakh. The company was originally designed to take care of our property management contracts (PMCs) and other activities. We realised eventually that such an entity was not required anymore and hence, we have taken 100% ownership.

Going forward, we feel reporting in consolidation will be a Herculean task with too many subsidiaries. Reducing the number of companies that we need to manage will make accounting and reporting a lot simpler,” he said. Earlier in September this year, the company had acquired Mugwort Developers Pvt Ltd. The said acquisition, according to Kanodia, was also part of the broader restructuring initiative.

In another development, PML is targeting a March 2012 breakeven for its Phoenix Market City Pune property launched earlier in June this year. With around 22% occupancy at the time of launch, the property is currently enjoying occupancy of 60-65% with over 200 operational stores giving the developer rentals of over Rs 5 crore.

“The initial response for Pune property has been very encouraging. We are targeting a profit after tax (PAT) level breakeven by this fiscal end. The current rental realisation is almost covering my interest requirement for the month. We are hopeful the occupancies will reach 90% by March 2012 and averaging at close to Rs 65 per square foot (PSF) in terms of rental value. This rental realisation will not only cover our interest but will also take care of the repayments thereafter,” he said.

PML’s flagship luxury hotel Shangri-La with the High Street Phoenix development at Lower Parel in Mumbai which was to open by now has got further delayed owing to approval related issues. While the developer (PML) has completed most of the execution work, the management now envisages 3-4 month delay in the opening. “Given the current approval related issues faced by most developers in the city of Mumbai, we now feel a March-April opening of the hotel will be more realistic as against December which was communicated earlier. It will basically start with soft launch and the entire asset should be completely operational in a couple of months thereafter,” he said.

After numerous delays since 2009, the Shangri-La Hotel, Mumbai was envisaged to finally open by the year end. Its asset owning company, Phoenix Mills Ltd (PML), had earlier planned to soft-launch the property with 50% inventory sometime in Q2 FY2010-11. However, PML ran into problems with one of its contractors as a result of which work on the project suffered until new contractor was appointed. Work on the project finally resumed towards the end of 2010 and PML management was optimistic about handling over the hotel to the management company (Shangri-La Hotel and Resorts) for a soft-launch by December 2011. However, with the new set of delays, the property is now expected to start receiving guests by March-April 2012.

Featuring 410 guestrooms and 23 serviced apartments when fully operational, Shangri-La Hotel, Mumbai will soft launch with 250 guestrooms. The serviced apartment units will however be launched in the third and final phase which is likely to happen by the end of 2012-13. 

Most of the hotel projects being developed by PML sit under a separate special purpose vehicles (SPVs). The Shangri-La Hotel, Mumbai is under Pallazzio Hotel and Leisure Ltd (a subsidiary of Phoenix Mills Ltd). The overall cost of the hotel project is envisaged to be over Rs 700 crore, of which Pallazzio Hotels has already pumped in Rs 483 crore in equity while the balance is debt.

In an earlier interaction, Shishir Shrivastava, group CEO and joint managing director, PML, had said, “We have invested close to Rs 625 crore as of now and additional investment of Rs 175 to Rs 200 crore will be made to fully complete this property. The equity part has already gone in and we are now drawing down the debt component as and when required based on the extent of work completed.”

Cox & Kings to bring in two Holidaybreak models

This story first appeared in DNA Money edition on Wednesday, November 16, 2011.

Travel company Cox & Kings (C&K) sees significant revenues coming from Holidaybreak, its recent acquisition, from the next fiscal, even as it plans to bring the UK firm’s two successful business models to India.

Anil Khandelwal, chief financial officer, Cox and Kings Ltd, said, “The contributions will come largely from Holidaybreak’s adventure and education divisions. As C&K’s existing business has a direct co-relation with these segments, we expect to improve the performance of these divisions by at least 5-7% on an annual basis. We also expect to increase capacity utilisation of the education division by 2-3% in the next fiscal.”

While the numbers may appear small, Khandelwal said, they are very significant given the large volumes at these divisions.

“This apart, we expect the revenues and profitability of Holidaybreak to improve from the next financial year,” he said.
C&K acquired the London Stock Exchange-listed Holidaybreak in July for Rs2,400 crore and payments to the tune of 310 million pounds have been made to the registrar to be paid to the Holidaybreak shareholders.

In the recently concluded (October to September) fiscal, Holidaybreak had revenues of 436 million pounds with an operating profit of 44.8 million pounds. The education and camping divisions have contributed significantly to the rise in its profitability.

“There is an increase of almost 2 million pounds in operating profit. The company has demonstrated good results, despite tough economic environment,” he said.

C&K is looking to bring Holidaybreak’s education and youth hostels divisions in India. “A lot of work in terms of evaluating and bringing these two concepts in India is being done,” he said.

Post the Holidaybreak buy, C&K has formed a committed of senior management personnel of both the companies to work on the integration plan.

While one of the big four consultancy firms has been appointed to look into the integration exercise, C&K has also brought on board a specialist who was involved with the travel company since it went public in 2009.

While C&K isn’t facing any problems due to economic slowdown in Europe and the US, its operations in Japan continue to be under pressure post the earthquake and tsunami situation there.

“We don’t see any visibility (revival of business) in the third and fourth quarters with respect to the Japanese operations,” he said.

Growing hunger for coal takes Tatas to Canada

My colleague Promit Mukherjee is the lead writer of this story, which first appeared in DNA Money edition on Tuesday, November 15, 2011.

The salt-to-software conglomerate, the Tata Group, is just not content with its substantial presence in Canada’s iron ore mines like Direct Shipping Ore and Taconite projects. Over and above the majority stake in those assets, it wants more and now has its eyes firmly set on the country’s metallurgical coal reserves, too.

The discussions are at a preliminary stage. Canadian ministry officials have let out that the group is looking at the British Columbia province of Canada for investment, which has huge reserves of metallurgical coal, also called coking coal and used for steel making.

“We are very much open to Indian companies picking up stakes in our mines and out of several companies we have spoken to, the Tata Group has shown a considerable interest to put in money here,” said Christy Clark, premier of the Province of British Columbia.

Clark is here in India for a business-cum-political visit and was in Mumbai to attend the Indian Economic Summit organised by the World Economic Forum and the Confederation of Indian Industries (CII).

Clark admitted that in this race for Canadian metallurgical coke, which is exported extensively, China seems to have the first-mover advantage and India has so much catch-up to do. In fact, citing a specific example, she said the China Investment Corporation recently picked up a 40% stake in a huge metallurgical coal mine in the province.

“China and Japan have huge interests in the region and we are also inviting Indian companies to the province as we have a gamut of opportunities for Indian companies here,” she said.

Currently, the bilateral trade between India and Canada is pegged at $2.1 billion of which a meagre $135 million comes from British Columbia.

Clark is out to change that and says she sees no reason why the figure can’t jump by a big margin over the next few years, given the promise the province holds.

Mining is just part of the bigger story. Clark has a string of meetings lined up with several business leaders in Mumbai and Bangalore over the next two days to push opportunities in various other fields like clean energy, LNG, shale gas, digital media and film, life sciences and mining. “Besides mining, British Columbia offers great opportunities in clean energy and LNG and we are keen on Indian participation in these sectors,” she said.

Clean energy - which includes hydro, bio fuel, solar and geothermal - accounts for as much as 93% of the power generation pie in British Columbia, but so far, Indian companies have been conspicuous by their absence from the scene.

Talking about what more is in store, Clark said the province has embarked on an ambitious $25 billion (Canadian) LNG project, the first part of which will come up in 2015 and the next will be ready by 2020. “Even in this project, Chinese companies have bid aggressively, but there has been no participation from Indian firms. We want companies here to come and invest in the project,” she said.

Canada is also keen to roll out a red carpet to Bollywood. “With a massive density of Indian population in our province, we want to make Vancouver the Bollywood of the West,” she added.

Currently, the bilateral trade between India and Canada is $2.1 billion out of which merely $135 million comes from British Columbia. Clark said with the number of opportunities present in the province, she wants to increase the number manifold in the next few years.

What ails infrastructure in India?

This story first appeared in DNA Money edition on Tuesday, November 15, 2011.

 - India gets about 100 hours of rainfall out of the 8,760 hours in a year, yet faces water shortage as the country has no facility to harvest rain water.
 - Despite having 500 billion tonne of coal reserves, India has tapped only 1%, even as fuel crunch pervades across power facilities.
 - Infrastructure in India is developed in such a haphazard manner that it ends up creating bottlenecks instead of facilitating smooth operations for stakeholders.

This was the theme that emerged at a seminar on infrastructure at a World Economic Forum summit, where industry participants felt that answer to the current woes lay in developing infrastructure holistically, or in totality, rather than in bits and parts.

“We waste $45 billion worth of efficiency because of our non-holistic view on the infrastructure development. This figure is expected to grow at least three times in the next 10 years,” Ravi Sharma, CEO, Adani Power, said.

Infrastructure development comprises growth in the healthcare, information technology, water, housing and real estate, education, energy and logistics industries.

James Stewart, chairman - global infrastructure, KPMG, UK, said, “While each and every sector contributes a certain level of growth, exceeding thresholds is only possible if the developments are looked at in entirety.”

Harpinder Singh Narula, chairman, DSC India, felt the government or the planners do not understand that the end user (public) has to be a participant in this. “The government can either take an inclusive or a top-down approach. However, adopting the latter leaves no possibility of taking a holistic view and that’s what we see happening in India,” he said.

Ankur Bhatia, executive director, Bird Group, said infrastructure development in India largely happens when ‘push comes to a shove’ kind of a situation.

“In most cases, we are developing infrastructure much behind of when it is required,” he said. “The aviation industry caters to 75 million people and a lot of them are repeat travellers, which mean only 30-35 million are taking to the skies in a market which is 300 million big. The primary reason is while people have the capacity to pay, a lot of destinations are not connected by flights.”

Participants also blamed government paralysis, bureaucratic stonewalling of projects and corruption for the infrastructure mess.

“The government has, by necessity, given lots of space to the private sector,” said Rajiv Lall, CEO of IDFC. “But having unleashed this genie, it has struggled to keep pace with it ... enthusiasm and skills of private developers far outpace the government’s ability to provide support.”

Ajit Gulabchand, the CMD of Hindustan Construction Cosaid there is a “huge slowdown” in infrastructure-building. “Scams have created a lull in decision-making, people are afraid to take decisions,” he said. With Reuters, adding “India has hurt itself by stalling projects.”

Infrastructure developers complain that the government has not kept its side of its bargain by failing to create a policy framework to allow the sector to grow.

“There is no sector where the policies are consistent, where policies are long term, where policies are really thought out,” said Sharma of Adani Power.

With Reuters

Companies sitting on Rs3.5 trillion cash. Albatross?

My colleague Nitin Shrivastava is the lead writer of this story which appeared in DNA Money edition on Monday, November 14, 2011.

Coal India, with cash and equivalents of Rs55,000 crore on balance sheet, is symptomatic of the story of corporates today: they are simply unable to deploy funds meaningfully, be it through investments, mergers & acquisitions or treasury operations.

So much so, cash held by companies surged by a third in the last one year to an all-time high of Rs356,452 crore as of September 30, according to an analysis by DNA.

That’s a 9.8% increase in six months and a staggering 33.71% year on year. In all, 283 companies (excluding banks and financials), which represent two-thirds of the market capitalisation of the Bombay Stock Exchange, were looked at.

“Companies have deferred investments over the last few quarters which is obviously reflecting in higher cash balances. The macro environment has been challenging with the sharp spike in interest rates and policy paralysis affecting business sentiment. Also, in these uncertain times, you need to keep a warchest ready,” said Anand Shah, chief investment officer at BNP Paribas Asset Management.

Reliance Industries, Coal India, ONGC, NMDC, Infosys and NTPC are among the biggest hoarders.

Coal India has the highest cash balance among all at Rs54,980 crore, according to the company’s results released on Saturday. The top 10 cash-rich companies contribute Rs221,168 crore to the hoard.

“The increase in cash balances reflects improvement in operating performance which has led to higher cash flows. Indian companies had undertaken huge capex some 2-3 years back, which is showing in cash flows now for some of the companies,” said the head of equities at domestic brokerage house, who did not wish to be named.

But, even as cash levels have risen, the total debt of companies continues to surge.Total loans of these 283 corporates stood at Rs11,23,244 crore as of September 30, up 16.6% over the last six months and 28.44% in the last 12. Experts believe this is not necessarily because of fresh investments.

“The rise would have been due to companies taking loans to meet higher working capital requirements and on account of higher inflation,” said Nischal Maheshwari, head of research at Edelweiss Securities.

Few capital-intensive sector companies such as Adani Power, Reliance Power, SAIL, NTPC and oil marketers are the ones which have seen substantial rise in debt.

“My sense is that a part of this money is actually debt cash. Barring IT, the cash position with a lot of other companies is on account of borrowed funds. And taking risk by deploying debt-based cash is not really what companies would want to do,” said Vivek Gupta, partner, M&A practice, BMR Advisors.

There’s a case that companies are not making full use of cash as returns on fixed deposits yield at best 5-6% post tax, compared with their net profit growth, which is multiple that at around 12-15%.

There are 68 companies sitting on net cash surplus after accounting for debt — the major ones being Coal India, Infosys, ONGC, Cairn India and TCS.

“Overall, corporates are not confident on the growth front. Demand is not improving in many sectors and margins are under pressure. The saving grace till now has been that revenue growth has been healthy, which may slowdown in the coming quarters on account of lag effect of interest rate hikes on demand and the higher base of last year. Also, higher capital investment tends to have an impact on immediate return on equity and the returns get better only after a few years, once capacity utilisation goes up,”said Shah.The capex cycle has come to a standstill and is at a trough, according to some.

“As for mergers & acquisitions (M&A), opportunities are being looked at more fundamentally. It’s not being done with the same euphoria as during the 2008 downturn. People are taking a more calibrated and deliberate call now,” said Gupta.

The Street believes the cash conservation mode will continue till the headwinds show signs of easing.

Cummins halves guidance second time this fiscal

This story first appeared in DNA Money edition on Saturday, November 12, 2011.

Cummins India, manufacturer of engines for power generation, industrial and automotive segments, has halved its growth guidance for the second time this fiscal to 5-10% as a slowdown in economy reduced orders and affected business.

Anant J Talaulicar, chairman and managing director, Cummins India, said, “We had estimated 20% growth at the beginning of the year. The guidance was later brought down to 10-15%. I’d say now that we are probably looking at a 5-10% growth across the board (domestic and exports) on a year-on-year basis. As far as profitability (PBIT margin) is concerned, we see a further deterioration of 1% sequentially.”

“The cost of money has gone up significantly and is causing some projects to get deferred. Secondly, some of the projects in the infrastructure sector are slowing down and the demand picture is not as bright as it was earlier. However, if the demand picture improves and inflation stabilises at today’s levels, the profitability will start improving,” he said.

Cummins said the most affected was its power generation business, followed by mining and construction, and added that the share of power generation in its total sales had come down to 30% from 40% earlier. The industrials business stayed flat at 12%, while auto’s share doubled to close to 10% levels. The distribution business, the company said, is about 18-20%.

The raw material costs have also increased affecting profits. The company said it has passed on increased costs from time to time in the recent past, but doesn’t see any scope for cut in prices now. Cummins plans to spend Rs200-250 crore in capex this fiscal and Rs300-350 crore in the next.

Havells to double retail outlets

This story first appeared in DNA Money edition on Thursday November 03, 2011.

Havells India, electrical and power distribution equipment manufacturer, plans to double its branded retail outlets in a bid to grow household appliance business four-fold.

The company currently has 103 branded outlets — Havells Galaxy Stores — which it plans to ramp up to over 200 in the next 12 months.

“The initial response to the home appliances range has been very encouraging, both from the end-users as well as the distributor fraternity,” Anil Gupta, joint managing director, Havells India said on a second-quarter analyst call.

The company had forayed into the home appliance business in August this year.

“A lot of our channel partners operating multi-brand outlets have expressed interest in converting to Havells branded exclusive outlets. The process has been kick-started already and we should easily achieve the targeted numbers,” he said.

Havells’ current offerings in the domestic appliance segment include products for food preparation, garment care, home comfort, cooking and brewing.

The company has earmarked a capital expenditure of `150 crore for this fiscal, of which `70-80 crore will be spent towards marketing and research and development for its small appliances range in the next 24-36 months.

“The market response during the festive season has been very positive and we are envisaging sales of Rs50-60 crore from our domestic appliances line this fiscal. The target for next fiscal will be Rs200 crore, and Rs500 crore in the next four years,” he said.

Sanjaya Satapathy, research analyst with Bank of America-Merrill Lynch, said Havells’ product expansion including the recent foray into home appliance products will help the company sustain 15-20% growth despite the adverse macroeconomic environment.

“The company has also launched new products in industrial switchgears and lighting fixtures in the first half of the current fiscal. It currently has a 6% share in the Rs3,000 crore industrial switchgear market and an 11% share in the Rs2,500 crore lighting fixture segment. Havells’ market share in these segments is below potential and these segments are also more profitable,” Satapathy said in his recent report on the company.

To enhance its penetration in Tier III markets, the company will increase its dealer network to over 6,000 from 4,000 now in a year.
The company’s net profit for the second quarter grew 16% to `81 crore as compared to Rs69.5 crore in the corresponding quarter previous year.

Consolidated net revenues grew 19% to Rs1,585 crore in July-September as against to Rs1,335 crore in the corresponding quarter last year.

Private equity deals halve as investment firms sit on the fence

This story first appeared in DNA Money edition on Thursday November 03, 2011.

Private equity (PE) investments in India continue to fall.
PE firms invested around $186 million across 15 deals in October as compared to $347 million in 26 deals in the same month last year, according to data by brokerage J M Financial. The decline in the amount invested and number of deals closed was 46% and 42%, respectively.

In the third quarter of the calendar year 2011, PE firms invested about $2,249 million across 98 deals as against $2,357 million spread over 111 deals a year ago. The third-quarter deal value was also lower in comparison to April-June, the preceding quarter, wherein a total of $2,911 million was put in across 122 deals.

While the decline is very steep, industry experts feel that generalising investment momentum based on a month-on-month data would be unfair.

Avinash Gupta, national leader - financial advisory practice, Deloitte Touche Tohmatsu I (P) Ltd, said, “I think responding to numbers registered in a certain short span is not the right way to look at the overall investment approach by PE firms. This is because one lumpy deal can completely change all the equations and things can suddenly start looking very different.”

However, Gupta agreed that slowdown in investment activity is visible and overall macroeconomic scenario globally is depressing the investment sentiment.

Gupta said there is a high level of uncertainty in the market and hence things are slow. Valuations are being impacted, particularly because interest rates and inflation levels are soaring, he said, adding, the general economic activity and slowdown in demand has made promoters of businesses unsure about their growth plans.

“Companies are still contemplating whether or not to invest in building capacity and to raise funds for it. So while there is enough money with PE firms, which are at various stages of their investment terms, they are adopting a wait-and-watch approach at the moment. It’s a mixed bag in the private investment market where we are seeing decent activity, but deal closures are happening at their own pace,” Gupta said.

However, despite sluggish investment momentum, the average deal size in October 2011 increased to $17 million as compared to $14 million in the same month last year.

The key sectors that saw PE money flow in were consumer, IT/ITeS and financial services with deal values accounting for 21%, 21% and 17% of the total investment. The data also indicated that this year PE firms increased their focus on unlisted companies with 87% of the overall deals as compared to 81% in October 2010.

Top deals in October included $32 million investment in India Infoline by The Carlyle Group, Reliance Equity Advisors’ significant minority stake in VVF for $28 million, co-investment of $25 million by NEA, Canaan Partners and Silicon Valley Bank in Naaptol Online Shopping, investment of $22 million in Max Flex and Imaging Systems by Reliance Equity Advisors and CLSA Capital’s $22 million placement in Resonance Eduventures.

In all, October 2011 witnessed three exits, the largest being $73 million by Warburg Pincus in Kotak Mahindra Bank.

While fundraising environment remained challenging, three new funds were closed, including second close of $550 million by Tata Capital for Tata Opportunities Fund.

On the other hand, two new funds were announced by KKR and SBI Macquarie, wherein the former is raising $6 billion for its second Asian Buyout Fund and the latter is planning to raise $1-1.5 billion for its second infra fund.

A senior official from one of the leading advisory firms said, “It will remain challenging for a lot of PE firms as their limited partners, or investors in the funds, now would like to see returns for their investments made in the past. PE firms which have an interesting theme and investment strategy may still be able to attract some LPs, but others will have to demonstrate performance and focus on making exits with decent returns.”