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

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

Captain CP Krishnan Nair

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

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

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

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

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

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

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

So did you get the land parcel from them?

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

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

Did you finally get the money back with interest?

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

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

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

What has been the response for the new hotel?

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

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

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

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

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

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

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

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

You look very fit for your age…

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

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

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

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

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

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

How did you and Dhirubhai Ambani become friends?

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

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

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

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

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

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

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

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

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

He asked: “Sir, are you the owner?”

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

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

How did you react?

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

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

Mukesh is doing that, we hear...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The asuras. That should be avoided.

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

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

What do you like to be remembered as?

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

HCC blames govt, politics for fourth quarter debacle

This story first appeared in DNA Money edition on Saturday April 30, 2011.

Hindustan Construction Co (HCC) has blamed its poor performance in the quarter ended March on lax government machinery and delay in decision making, besides high interest costs.

The engineering and construction company reported a sharp decline of 47.4% in net profit at Rs22.6 crore even as turnover increased 10.8% to Rs1,209.73 crore. Earnings before interest, tax, depreciation and amortisation margin for the quarter stood at 14.4%, but the gain was offset by interest costs, which were up 100% at Rs90.27 crore.

Ajit Gulabchand, chairman and managing director of HCC, pointed out the slowdown in government spending on infrastructure last fiscal. “The entire slowdown has been due to a variety of reasons including projects that have not been cleared or have been stopped because of environmental clearances. There are other projects, work on which could not progress because ministries were revamped, thereby causing delay in the entire decision making process. Similarly, elections in five states have had an impact in addition to unearthing of various scams that further delayed bureaucratic decision making. The impact of slowdown isn’t restricted to the government institutions alone as the private sector has been caught up with its own set of issues.”

Making matters worse, many of the expected order backlogs did not materialise, said Gulabchand.

The current fiscal looks better, he said. “The financial year in progress is looking a little better because some of the orders that got delayed from the last year and those expected to come in are likely to get clubbed, thereby creating a better situation for infrastructure. While slowdown continues, the quantum of orders that will be on hand, not necessarily secured by us, would be far more in the next six months than what they were before. To that extent, I think we are better poised in some of the cases to be able to seize a reasonable number of projects in the current year.”

With an order backlog of Rs18,127 crore as of March 31, the HCC management is looking at a 20% increase in annual turnover from the current Rs4,000 crore. “If we are looking at that kind of a turnover, in order to increase the order backlog, we have to look at additional orders of Rs6,000-8,000 crore. Whether this is possible... I think there is a good chance. But if the slowdown persists, then it may not really change the situation much. This is a fact we have seen and we are only hoping things get better here on,” he said.

Meanwhile, HCC is looking to introduce the business activities of the recently acquired Swiss company Karl Steiner AG to the Indian market sometime during the second or third quarter this fiscal. The management will be setting up an India subsidiary (Karl Steiner AG) with plans to grow the business up to Rs5,000 crore. Thereafter, it will look at possibilities of making opportunistic forays into Europe, Middle East and Africa.

The performance of Lavasa Corp, another subsidiary, has been hurt by the environment ministry’s order to stop work.

Lavasa reported a lower net profit of Rs112 crore for last fiscal as against `140 crore the previous fiscal. The HCC management expects the issue to be resolved shortly as it is awaiting environmental clearances.

Another subsidiary, HCC Infrastructure, has an asset portfolio of `5,500 crore including six NHAI road concessions. There are fundraising plans in the infrastructure business and the company may announce a placement in the coming months.

Mahindra Holidays sets higher inventory target

An edited version of this story first appeared in DNA Money edition on Friday April 29, 2011.

Mahindra Holidays & Resorts India Ltd (MHRIL) is gearing up to cover lost ground in the current financial year. Having managed to add just 148 rooms against the target of 500 in FY'11, the management is now targeting an overall inventory addition of 800 rooms in the current fiscal.

A part of auto major Mahindra & Mahindra Group, the BSE-listed hospitality company, has taken up higher targets in terms of new room additions thereby ramping up inventory to meet future growth targets. Taking a three-pronged strategy, the company is looking to close a few acquisitions as well that will cost approximately Rs 300-odd crore. In fact, some of the acquisitions, the company management said, are likely to be closed in the first and second quarter this year.

Ramesh Ramanathan, managing director, Mahindra Holidays, said the company is adding rooms though a mix of greenfield, brownfield and long-term lease arrangements. “The plan is to add 800 rooms in the current fiscal of which 400 will be added through greenfield developments. The balance inventory is in various stages of development including around seven projects through the inorganic route. In fact, we are already in a fairly advanced stage of due diligence with three such projects. If only we could have finished the exercise in time, these would have become part of our last year's room addition,” he said.

The acquisitions to be made will be in the domestic market (within India) and include both small and big inventory (under 70 rooms to over 100 rooms) projects from across the country. “It would be inappropriate of me to give out specifics at this stage, all I can say is that some of the acquisitions will very likely get closed in the first and second quarter this year. All in all the inorganic approach will cost us around Rs 300-odd crore,” he said.

The company has earmarked an overall capex of Rs 700 crore which will be funded mainly through internal accruals. MHRIL is sitting on Rs 200 crore worth of cash on books of which Rs 75 crore is the IPO money and balance is from operations. “We also have Rs 800 crore of receivables (EMIs due from our customers) which can be securitised to raise the balance. We have taken this approach in the past and we can securitise the same as and when there is a requirement,” Ramanathan said.

MHRIL's overall guestroom inventory in FY'11 stood at 1,624. The company added 69 rooms during the last quarter FY'11 with 44 rooms in Udaipur and 25 rooms in Kanha. Lat year, the company had a backlog 352 rooms (500 – 148) which are part of current year's plan as well.

Elaborating on what really went wrong with meeting last year's target, Ramanathan said, addition of rooms is something that can take long at times. “We would have really liked to meet the target but a few things didn't happen the way we envisaged. We were to add a resort at Tungi with 155 rooms. Most of the work on this project had been completed and we were awaiting occupancy certificate (OC) which has been pending for a while now. This project unfortunately couldn't form part of our room addition last year else the picture would have been completely different as we speak now,” he said.

On reason behind sounding so bullish on meeting the company's new targeted addition of rooms, he said that their project in Tungi will bring in 155 rooms, a project near Coorg with 150 rooms will get completed within this year and another 100-odd rooms will get added between Gir and Kanha projects. Thus the four greenfield projects will take care of 400 rooms and the balance will be added through a mix of lease agreements and acquisitions as detailed earlier.

Analysts tracking the company had earlier expressed concerns about the management's ability to execute expansion plans thereby making a meaningful positive impact on the overall business prospects. “We believe, only meaningful addition of rooms will help the company sell its offerings aggressively. We believe headwinds in membership additions will continue for a few more quarters before the restructuring starts showing results. We also believe that new schemes to be launched are far in future to have a meaningful impact on near-term financials,” said Manav Vijay and Manish Sarawagi, analysts with Edelweiss Securities, in their latest report.

Responding to the analysts' concerns Ramanathan said that the company relates rooms with the number of members on board and that anyone buying membership will not be elligible to take a holiday unless they have paid the company in full. “So there is a time delay between when you enrol and when you can go on a holiday. Presently we have an enrolled membership base of over 125,000 of which 80,000 are eligible for a holiday. Our current inventory of 1,624 rooms is sufficient to meet holiday requirements of the elligible membership base. Thus, if you look at work-in-process versus what we have actually managed to accomplish, we are doing pretty good,” he said.

On the membership front, MHRIL added net 3,418 members (2,717 Club Mahindra Holidays and 701 Zest) in Q4FY11 against 3,758 (3,146 CMH and 612 Zest) in Q3FY11 and 774 in Q4FY10. On gross basis, the company added around 5,500 members - 4,700 as CMH memberships and 800 as Zest. During FY'11, the company added 15,285 members on net basis and around 20,900 on gross -  its total membership base currently stands at 1,25,169.

The company in FY'11 has been rationalising its membership base as a result a considerable number of memberships had been categorised as non-permorming members. The number of such members was significantly high at over 7,000 last year which has be reduced significantly. I'd say these is very normal in business like ours and can very well be absorbed in the system. What we are also doing is putting in place a very robust system to ensure the non-performing membership numbers are brought down significantly. We cannot completely eliminate it but there are always ways to reduce the number of such members going forward and we are already doing that,” he said.

However, writing-off of around 2,000 members during Q4FY11, analysts feel, also indicates that the pain in the system is far from over. “We would like to maintain our 16% growth or around 20,000 membership addition estimates for FY'12, along with 10% increase in average membership ticket size,” the Edelweiss analysts said in their report.

A part of the country's leading business conglomerate, the Mahindra Group, the company named Rajiv Sawhney as the new CEO of Mahindra Holidays & Resorts India who is likely to assume office in May 2011. Ramanathan has appointed as head of Mahindra Group's pioneering initiative in setting up Hospitality Schools and other learning platforms for the hospitality business.

Realtor Omkar raising Rs 500 cr in private equity

An edited version of this story first appeared in DNA Money edtion on Saturday, April 23, 2011.

Mumbai-based real estate player, Omkar Realtors and Developers Pvt Ltd, is in the process of raising private equity to part fund its residential and commercial developments in the city. The company management is in the advanced stages of discussions with potential investment firms and is likely to close the deal within a couple of months from now.

Deepak Mishra

Confirming the development, Deepak Mishra, head – sales and marketing and official spokesperson for Omkar, said, “Talks are currently on with a select few private equity investments firms. I can’t disclose any details at this moment though because it will create confusion and we’d like to avoid that situation.”

The private equity placement, according to Omkar management, will be at the entity level wherein the company will off-load minimum stake. “We have a very good pipeline with banks and financial institutions and have tied-up over Rs 1,000 crore from them. So I don’t really need to off-load a majority / large stake in the company. Secondly, most of our assets will be unleashed only in the next two to three years thus it is in our interest to divest minority stake as a benchmarking process to get a financial partner on board,” said Mishra.

When inquired about the extent of funds to be raised and if the sum was anywhere in the Rs 400 to 500 crore bracket or more, Mishra said, “It should be in and around that figure.”

A closely held company, Omkar’ registered a turnover of Rs 262 crore (top-line) last year. The company expects to grow this number to Rs 10,000 crore in the next 3-4 years. “That’s our internal target,” he said.

Having already developed and delivered 2mnsft of residential and commercial projects, the company has a pipeline of nine projects across different pockets in Mumbai. In all, the realtor has 20mnsft (saleable) of projects under various stages of development of which 10mnsft will be launched within this calendar year. In fact, the company has already launched approximately 2mnsft in the market and another 2mnsft is work in progress.

Elucidating their pricing strategy, Mishra said that both projects have been very attractively priced and rates are significantly lower than those charged by the nearest competition. “It’s a standard approach in our company as we believe ticket size and speed of sales is inversely proportional – higher the price slower the selling pace. Our business approach is to create, deliver, exit and move on to newer developments by selling our inventory in the shortest time-frame,” he said.

Among its marquee projects in Mumbai include residential-cum-commercial development at Worli (on the erstwhile Crest House land parcel) which it had earlier acquired. With a saleable area of 2.5mnsft, the residential development will have saleable area of 2mnsft and the balance (0.5mnsft) has been earmarked for commercial space with a proposed five-star premium / luxury hotel. Featuring 500 units, the company has already got on board London-based architectural firm ‘Foster + Partners’ and is positioning the residential apartments as top-of-the-line living spaces with a ticket size of Rs 6-7 crore.

Another high-end residential-cum-commercial project with a saleable area of 2.5mnsft in Malad is currently in the pre-launch stage. The company has already appointed channel partners, international property consultants (IPCs), brokers etc. to soft-launch and expect to officially open it for public sales in another three months. The project will offer 2/3/4 BHK apartments (1,100 units) spread across 1,200 to 2,200sqft. This development will also have 0.5mnsft of commercial space which will be launched at a later date.

The total investment required to construct projects under various stages of development is in the region of Rs 6,000 crore, of which the Worli development itself will absorb Rs 3,500 crore.

I&B min moots new timeline for cable TV digitalisation

This story first appeared in DNA Money editoon on Monday April 18, 2011.

The Ministry of Information & Broadcasting has come out with a revised time schedule for a four-phase digitalisation process of cable TV across the country. The move follows Telecom Regulatory Authority of India's (Trai's) rejigged recommendation in February this year for a December 2013 deadline to implement digitalisation with addressability in cable TV systems. The revised schedule from the ministry has chosen December 2014 as the final sunset date for analog cable systems across the country.

Industry experts, though, aren't excited. "We don't view the revised time-frame as a big change — as the government maintains its initial timelines for the first two phases and has only revised its timelines for the last two phases by three months. While the intent remains positive, we think the recommendations alone may not be enough to fuel digital growth," Surendra Goyal and Aditya Mathur, analysts at Citi Investment Research & Analysis, wrote in a report.

Getting Cabinet approval is seen as the deciding factor, especially with respect to implementation.

Analysts tracking the development said the contract will have to be reviewed to ascertain if it is attempting to significantly change The Cable Television Networks (Regulation) Act, 1995. "If it's not, then there won't be any difficulty in getting parliamentary approval. However, if there are significant changes being suggested in the Act and the matter goes to Parliament, it will be a serious problem because the opposition isn't really supporting any initiatives from the government/ ministry at this point in time," an analyst with a domestic broking firm said, requesting anonymity.

Finally, assuming the proposal goes through, industry experts feel the next big challenge will be its execution/ implementation. Timely execution is key and the possibility of delays can't be overlooked, especially in smaller towns, feel the Citi Investment Research analysts. "There could be some execution hurdles even at the state government level. Further, digitalisation will require high capital investment for upgrading equipment, devices and accessories, which may be a challenge. In terms of overall investment that may get pumped in, our discussions with industry participants' estimate investments at $9-13 billion," Surendra Goyal and Aditya Mathur wrote in their report.

Digitalisation in Phase I, analysts feel, will be quicker as metros are very lucrative markets. Besides, MSOs operating in these cities have deep pockets and hence wouldn't mind investing for digitalisation. What also works in favour of metros is the fact that quite a few pockets in Mumbai and other Phase I cities have already undergone digitalisation.

The digitalisation process will require significant investments by the players, who will have to either raise capital internally or look for external resources. "I think once the metros have been digitised, the market players will then look to raise money for ensuing phases. In fact, if Phase I sees a good success ratio, I think there is going to be a mad rush for raising funds and private financial institutions/ investment firms are likely to play a crucial role by providing growth capital for DTH players and MSOs. This because the investment community is also looking to place their bet on businesses that will drive consumption in the market and digitised media is very high potential segment," said the analyst from the domestic broking firm.

Benefiting the most from this mandatory digitalisation move by the I&B ministry will be direct-to-home players such as DishTV, Tata Sky, Airtel Digital TV, Reliance Big TV, Sun Direct and Videocon DTH, besides cable and satellite companies like Wire & Wireless, Den Networks and Hathway.

Welcoming the I&B ministry's move, Ajai Puri, director and CEO, Airtel Digital TV (Bharti Airtel) said the initiative will only bring in transparency in the entire process and all stakeholders, broadcasters, customers and the government will benefit from this. However, Puri suggested a few more steps which, if implemented, will make it a lot more feasible and practical to bring in digitalisation.

"Custom duty on import of digital boxes should be withdrawn to fuel rapid growth of digitalisation in the country. In fact, with the new mandatory sunset date in place, the box requirement will go up significantly from 13-15 million boxes at present to 25-30 million boxes annually. The second issue is the 10% license fee on DTH services while there is none on digital cable and the HITS format. This makes it completely non-viable besides proving to be a non-level playing field for DTH players. Third issue is the entertainment tax being levied by the various state governments. For example, UP has 25% entertainment tax in addition to annual registration charges in the region of `5,000 to `25,000 to be paid by all DTH retailers operating in the state. Lastly, to make this addressable system to work efficiently, there should be a complete review of the tariff order by Trai. We have been demanding that the tariff for digital platforms should be 10% of the analog platform because the latter is not completely transparent in its operations and declares just 10% of its entire subscriber base. The broadcaster's tariff has been arrived at keeping this scenario in mind," said Puri.

Currently, there are 500 channels, of which 400 are active and the carrying capacity of the majority of cable operators is between 100 and 150 channels. If one takes the total tariff of channels being broadcast, the figure comes to around `1,742 per subscriber per month.

"That's the sum broadcasters will charge the operator, who in turn levies his own cost, taking the overall price in the region of `2,500 to `3,000 per subscriber per month. It is public knowledge that customers pay under `250 per month for their cable subscription. Thus, because there is 90% under declaration, the broadcasters arrived at such high tariff, which gives them anything between `150 and `170 per subscriber per month from the cable operator," said Puri.

All this, feel market players, needs to be corrected in the light of the fact that the entire distribution system is being digitised and is addressable, thereby bringing down the broadcaster's tariff to more acceptable/ reasonable price points. Getting the aforesaid issues right will lead to a significant growth (in the media digitalisation) and the entire country will get digitalised well within the sunset time schedule prescribed by the ministry.

As far as getting investments is concerned, the four suggested changes will help build a strong business model (for DTH, digital and analog systems), thereby instilling confidence in the existing market players who, experts feel, will be more than willing to pump in all the money required to grab market share and boost revenues.

Zee Ent beats Street, Goldman upgrades price, margin targets

This story first appeared in DNA Money editon on Wednesday April 20, 2011.

Zee Entertainment Enterprises Ltd on Tuesday said consolidated net profit for January-March rose a street-beating 49% year on year to Rs192 crore and consolidated net sales grew 23% to Rs798 crore. Consolidated operating profit, or earnings before interest, tax, depreciation and amortisation (Ebitda), for the quarter stood at Rs226.8 crore with Ebitda margins at 28.4%.

Ishan Sethi, Vaishnavi Kandalla and Pulkit Patni, analysts with Goldman Sachs, said raised Zee’s operating margin prediction by about 100 basis points to 25.8% due to this performance. They also upgraaded the target price for the stock to Rs135, in a note to clients on Tuesday.

For the last fiscal, operating revenues stood at Rs3,011.4 crore, while consolidated operating profit was Rs826.6 crore with an operating profit margin of 27.4%. Net profit was Rs623.6 crore.

Subhash Chandra, chairman, Zee, said the last fiscal was a significant year for the television media industry in several ways. “The number of television households witnessed a healthy growth. Similarly, advertising revenues bounced back after a slowdown in fiscal 2010, reflecting a buoyant recovery in the economy. The sector also saw some consolidation taking place. However, what was really encouraging is that digitisation continued to be the dominating theme,” he said.

The numbers for fiscal 2011 have been arrived at after consolidating the financials of Taj TV Ltd, a company statement said. Zee has also merged with itself the 9X business undertaking of 9X Media Pvt and ETC Networks with effect from March 31, 2010. “Post the merger of ETC Networks with Zee, the entire education business undertaking of Zee was demerged into a new listed company, Zee Learn Ltd, effective April 1, 2010. Hence, the numbers for this quarter are not strictly comparable on a like-to-like basis,” the statement said.

Punit Goenka, managing director and chief executive officer, Zee, said in a year which recorded a resurgence of advertising revenues on television, the company has outperformed the industry. “We ended fiscal 2011 on a good note, gaining viewership share across several genres, combined with improved revenue shares, better operating margin and increased cash flow. With our subscription revenues growing at a healthy pace, our overall revenues have recorded a 23% growth over the fourth quarter of last year. For fiscal 2011, our revenues grew 37%, while Ebitda grew 36%, despite increased losses in sports business,” said Goenka.

He said the (sports) losses were contained to Rs15.2 crore during the fourth quarter, in line with their earlier forecast. Goenka said that the company’s content focused approach combined with better monetisation of subscription revenues is expected to deliver steady returns in the year ahead.

‘Orchid’ won’t bloom for Bangalore hotels chain

This story first appeared in DNA Money edition on Thursday April 21, 2011.

Kamat Hotels India Ltd that owns and manages The Orchid ecotel hotels, has got an interim injunction against Bangalore-based Royal Orchid Hotels Ltd (ROHL) on the use of term ‘Orchid’ for their new hotel launches in the country.

A statement on this development from Kamat Hotels said the company had filed a trademarks case in the high court and the recent judgement bars Royal Orchid Hotels Ltd from using the word ‘Orchid’ for all their future projects.

“The court upheld the registered trademark as owned by Kamat Hotels, barring Royal Orchid from using the word Orchid. All existing names of the hotel under the banner of ROHL remain unchanged for the moment until this matter is finally decided by the court,” the statement said.

Speaking on the issue, Vithal Venkatesh Kamat, chairman and managing director, Kamat Hotels,said the management has been staving off similar incidences for a decade now.

“We have asked for a complete injunction and are entitled for the same as per trademarks rules and regulations. We will fight it out in the court and win the case inevitably. It is going to be a constant battle, but hopefully, with this judgement against Royal Orchid, it should pave the path for The Orchid to be our own private and registered trademark and not others to ride on.”

Chender K Baljee, founder, chairman and managing director, Royal Orchid Hotels in his response to the trademarks related court order said it is not a final judgement and that the matter is still sub judice.

“What happened was they (Kamat) filed a case saying we were using their Orchid brand to our advantage but there was no evidence given to prove it in court. We also provided the court with our defence saying we have always used Royal Orchid as our brand and our logo is very different too.”

“The court has only given them an interim injunction barring us to use the term ‘Orchid’ in any of future launches but our existing properties will continue with the Royal Orchid brand they are operating in. The matter is still sub judice and we will go in for an appeal against that order within a month so the case is not yet closed,” said Baljee.

On the possibilities of putting together a new brand altogether just in case the court orders a complete injunction, Baljee said it was too early for that. “We will disclose the details at an appropriate stage,” he said.

Valiant, Norwest and Intel Capital invest Rs 200 crore in Yatra.com

It's raining dollars for online travel portal companies operating in the Indian market. Just a few days ago Cleartrip.com raised $40 million (approximately Rs 180 crore) from Concur and now it's Yatra Online Pvt Ltd that has received a little over $40 million (approximately Rs 200 crore) funding from investors like Valiant Capital Management, Norwest Venture Partners (NVP) and Intel Capital.

The investment, Yatra said in an official statement, will help accelerate growth plans by enabling the company to increase sales and marketing activities, expand its hotels and holidays business and selectively pursue strategic acquisitions.

Dhruv Shringi, chief executive officer, Yatra, sais, the company has witnessed exponential growth over the last four years and is now one of the leading brands and household names in India. "This round of funding will enable us to broaden our reach and brand awareness in Tier II and Tier III towns, which are experiencing tremendous growth in e-commerce. In addition, we will use the funds to accelerate our expansion in the hotels and holidays segments," he said.

A leading consolidator of travel products, Yatra.com provides reservation facility for more than 3,800 hotels across 336 cities in India and over 90,000 hotels around the world.

“When we made a seed investment in Yatra.com in 2006, the online travel market in India was still at a nascent stage, but there was a tremendous need for innovation in this sector. We were confident that Yatra was at the forefront of the changing face of travel in India and the company was poised for tremendous growth,” said Promod Haque, managing partner at Norwest Venture Partners and Yatra chairman and board member.

$40 million gives Concur minority interest in Cleartrip

Nasdaq-listed Concur, a leading provider of integrated travel and expense management solutions, has got into a strategic alliance with privately held online travel portal Cleartrip. The arrangement between the duo consists of both a marketing partnership and a $40 million strategic investment for a minority interest in Cleartrip. This alliance, according to company management, aligns with Concur’s strategic initiatives to expand customer base while also entering new geographies, including Concur’s new operations in India.

According to Steve Singh, chairman and chief executive officer, Concur, The Indian economy is fueling a travel sector that is expected to grow to over $20 billion by 2012. "As a global technology provider, we understand that it’s critical to focus on the local needs of each market in which we operate. In partnership with Cleartrip, Concur plans to leverage the synergies of our combined technologies to help us expand our offerings, extend our reach, and make business travel easier for the millions of travelers in India,” he said. Concur is a leading provider of integrated travel and expense management solutions for companies of all sizes. Concur’s easy-to-use web-based and mobile solutions help companies and their employees control costs and save time.

Launched in July 2006, Cleartrip is one of the leading online travel companies in India. Sandeep Murthy, chairman, Cleartrip considers this partnership with Concur as a strategic opportunity that will provide enhanced benefits to the Indian business travel market. "We have built a broad and loyal base of customers who value our simple and smart approach to travel. With a strategic partner in the form of Concur, we will together drive this dynamic category, by helping Indian businesses of all sizes achieve new levels of efficiency in travel and expense management, through enhancements in technology and product offering as well as superior service."

M&A deal value up 270% in January-March

This story first appeared in DNA Money edition on Saturday, Apr 16, 2011.

With the economy gaining momentum, merger and acquisition (M&A) activity, too, has started gathering furious pace.

M&A deals involving Indian companies rose 270% in January-March 2011 to touch $18.3 billion over the numbers reported in the first quarter of last year, according to data by Mergermarket, an independent M&A intelligence service.

Thirty five out of the 57 transactions were inbound deals (over 61%), compared to 27.1% for China and 14.3% for Japan. All the top five deals in value terms were cross border - four inbound and one outbound.

“What was more significant is that the total worth of inbound Indian deals ($16.9 billion) reached unprecedented figures,” Mergermarket said.

M&A advisors say that economic cycle has reasonably or fully recovered, which is showing up in the form of increased traction.

“The economic cycle recovery started around mid 2009 and the momentum continued in the next year as well. That is the key reason behind increase in deal making. There is a change in the base effect, which is evident from the increase in the deal value, though number of deals hasn’t seen a similar growth,” said a senior official from one of the top advisory firms.

Among big-ticket deals, acquisition of Paras by Reckitt Benckiser and International Paper’s acquisition of Andhra Pradesh Paper stand out- especially the latter. Experts say it is the first time that a public company has received such high premium (240%) that too in the paper business, which is not perceived to be very attractive.

“Overall, the M&A volumes will remain and only grow from here. I am certain that we will see strong momentum on the back of economic recovery,” said Gaurav Deepak, co-founder and managing director, Avendus Capital.

Experts said an intrinsic value benchmarking has begun in the Indian market wherein strategic buyers are driving value creation and value discovery, which augur well for the Indian business environment.

While sentiments have improved in the last 12 months, the economic activity was subdued in Q1 of 2010 and the January-March 2011 numbers also included two large deals.

Besides, time taken to conclude these deals is also a key differentiator, feel experts.

“Typically, a cross-border M&A deal for any large corporate is spread over 4 to 5 quarters while it is 6 to 9 months in case of a domestic transaction. In 2009, no corporate was even thinking about doing M&A as focus was largely to swim out of the rough recessionary waters,” said Deepesh Garg, director, o3 (Ozone) Capital Advisors.

The confidence started building in 2010 as a result companies began negotiating deals all over again. So deals that are getting announced in the last few months are the transactions that were in various stages of due diligence and got concluded in the first quarter of 2011, he said.

“In the last 12 to 16 months, corporates stayed bullish, which is largely the reason behind a bunch of deals getting concluded,” he said.

On the impact of long gestation period on deal value, industry experts feel a lot of it depends on how the company has performed in that period, performance of the market, additional bidders for the company, etc. “I wouldn’t say there is a significant change in the deal value from the time negotiation starts to its actual conclusion. However, in case of auctions, the valuations do tend to sway 30% to 40% either ways, depending on the kind of response a particular asset generates from the market,” said a senior official from a leading domestic advisory firm.

On the outlook, experts feel that current traction will continue if economy doesn’t slow down in the coming months. “If everything continues the way it is I am sure the momentum will only pick pace from here with more and more deals getting announced in the coming quarters. From what we have gathered through our interactions with large corporates globally, every strategic presentation has pieces of India as part of their strategy which clearly shows there is a lot of global interest in the Indian market,” said Garg.