Tata Global hikes stake in Rising Beverages of the US

This story first appeared in DNA Money edition on Thursday August 11, 2011.

Tata Global Beverages Ltd has increased stake in The Rising Beverages Company LLC through its UK subsidiary.

Rising Beverages is a US-based performance beverage and bottled water manufacturer that sells products under the brand Activate.

Tata Global, the world’s second-largest tea company, had in October last year made a $21 million investment in the US firm for an undisclosed minority stake.

“During the first quarter of the current financial year, our international subsidiary has increased investments in Rising Beverages. Our holding in the company currently stands at 43.1%, calculated on a fully diluted basis. The subsidiary also has an option to further increase the stake in the future,” said Percy Siganporia, managing director, Tata Global Beverages Ltd.

“The incremental investment has been made based on achievement of certain milestones set while making the earlier investment,” Siganporia said.

He did not disclose the details of existing and incremental investments made in the company or comment on the possibility of acquiring a controlling stake going forward.

In another development, Tata Global has discontinued the TiON brand, which the company launched in Chennai sometime in 2009, marking its foray into the cold beverages segment.

“The product did not meet the set matrix envisaged by the management at the time of its launch and hence a decision was taken to drop it from the portfolio of products in the Indian market,” said Siganporia. The brand was pulled out of the market last quarter, he said.

Tata Global’s current offerings in the Indian market include Tata Tea, Tetley and natural mineral water brand Himalayan.
Owing to increased volatility in the commodities market, the company had taken a single-digit hike in one of its products, Tata Tea Premium, towards the end of June. The impact of this price increase, according to the company management, will be seen in the coming quarters.

For the first quarter of this fiscal, Tata Global’s consolidated net profit was up a whopping 253% at Rs161 crore even as consolidated operating income rose just 6% at Rs1,467 crore.

The profit growth was mainly on account of an exceptional gain of Rs89 crore from sale of non-core assets —- sale of investments made in stocks of group and non-group companies.

“The growth in business has been witnessed primarily because of the volumes, while value growth has been very minor at present. However, with the increase in prices in June this year, we will start seeing some value growth happening post second quarter,” said Siganporia.

Asked if the company was looking at introducing any of its international brands in the Indian market, he replied in the negative.

The company’s international portfolio includes brands like Good Earth and Eight O’clock coffee.

Siganporia also did not comment on the status of the company’s joint venture with Pepsi, saying the details would be announced in due course.

Tata Coffee talks supplies with Starbucks

This story first appeared in DNA Money edition on Wednesday August 10, 2011.

Tata Coffee is at an advanced stage of discussion with the Starbucks management to start manufacturing coffee for their retail sales.

“We are in talks with Starbucks management for a manufacturing arrangement, Hameed Huq, managing director, Tata Coffee, said.

“This basically means all coffee meant for retail sales by Starbucks will be produced and packaged by us. While talks are at advanced stage it will be difficult to put a timeframe as to when this deal will get concluded.”

Huq, however, did not specify if the manufacturing for retail sales will be specifically for the Indian market or include some of Starbucks’ international markets as well.

The deal, according to sector analysts, is in line with the Tata Coffee management’s strategy of building long-term relationships with coffee brands globally.

MD Kumar, executive director-finance, Tata Coffee, categorically said that the company is aggressively working towards becoming the preferred brand (of coffee manufacturer) for all the private label coffee brands globally.

“It’s an approach to put in place a more successful and sustainable business model without getting into branding ourselves. The idea is to be the brand behind the brands, build relationships with private labels and ensure continuous supply of coffee to established/leading brands globally,” said Kumar.

On the instant coffee front, the company is looking to expand current capacity from 6,000 tonne to over 8,000 tonne in the immediate future. The overall plan however, according to Huq, is to double the current capacity to 12,000 tonne within this financial year.

“We are building capacity at the Madurai plant which will see capacity addition of 2,000 tonne very soon. The overall capex required for this will be to the tune of Rs50 crore,” said Huq.

Having helped some of the Russian and Japanese coffee brands with their packaging in addition to manufacturing their requirements, Tata Coffee is also looking to set up a few packaging units in the international market.

“The idea is to save on the freight cost, create efficient logistics management and be able to make timely supplies to markets like Europe, Africa and Russia and Japan. Going forward we will be looking to set up a packaging plant in Europe to start with and a second one in Russia if the situation demands then,” Huq
said.

Tata Coffee’s profit after tax atRs12.92 crore was up 127% compared to the same period last year while its turnover at Rs120 crore was up 29% from the corresponding period last year.

Shangri-La to debut in Mumbai by year end

This story first appeared in DNA Money edition on Friday, August 05, 2011.

After seeing numerous delays since 2009, the Shangri-La Hotel is finally set to debut in Mumbai by the year-end.

Phoenix Mills Ltd (PML), the asset owning company, had earlier planned to soft-launch the property at its Parel compound with 50% inventory in the second quarter of the last fiscal.

However, the company ran into problems with one of its contractors and the work suffered till a new contractor was appointed.

Work resumed towards the end of 2010 and PML is now optimistic about handing over the hotel to the management company, Shangri-La Hotel and Resorts, for a soft launch by December 2011.

Shishir Shrivastava, group CEO and joint managing director, PML, told DNA that the company will be handing over the hotel’s public areas to the management company by September.

“The hotel will be opened in a phased manner and the soft launch is likely by December. We are targeting to open with three restaurants, a little over 50% of the overall guestroom inventory and banqueting space. Work on the balance guestroom inventory will continue and is likely to be completed by April 2012,” said Shrivastava.

PML wants to hit the market in time for business season and achieve efficiency in cost of operations. It expects the average room rates during the soft launch to be above `10,000 for a night’s stay.

Shangri-La, which would be soft-launched with 250 guestrooms, would have 410 rooms and 23 serviced apartments when fully operational.

The property is being developed by Pallazzio Hotel and Leisure Ltd, a special purpose vehicle of Phoenix Mills. The hotel cost is over Rs700 crore, of which Pallazzio has already pumped in `483 crore as equity, while the balance is debt.

“We have invested close to Rs625 crore as of now and additional investment of Rs175- 200 crore will be made to 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,” he said.

Pune-based Avinash Bhosale Group is among the investors in Pallazzio Hotel. It holds an instrument that will convert to 27% stake at the time of maturity. “The conversion is time bound and is not linked to any performance parameter. It will happen in April 2015,” Shrivastava had earlier said.

PML’s other hotel projects at Kurla (Mumbai), Chennai, Pune and Agra are also held under different special purpose vehicles with investments by Phoenix Hospitality, a PML group firm. PML has already signed management contracts with Marriott International for its Kurla and Agra hotels.

For its Pune hotel, PML has signed a letter of intent with a international hotel chain. Industry sources said the hotel is likely to be operated by Hilton under one of its upscale brands.

Growing affluence giving wings to Indians

An edited version of this story first appeared in DNA Money edition on Saturday July 30, 2011.

Alan D'Mello a senior marketing and communications personnel with Thunderbird Resorts takes a short break from work almost every month. He along with creative director wife Shyamashree, daughter Anouk and pet dog Mae hit the road on extended weekends to destinations in Maharashtra and nearby states like Goa and Gujarat. This apart, the D'Mello family also undertakes one long holiday every year and visits international destinations mainly countries in the South Asia Pacific region.

According to D'Mello, “Any destination within 400 kms is what we choose for short breaks over weekends. We take a flight for places Kerala, Rajasthan and Delhi. The accommodation type for such short breaks largely comprises budget and mid-market hotels priced in the Rs2,500 to Rs 3,500 range. We generally allocate 10% of our annual earnings for travel.”

Similarly, Supriya Mishra, working with a leading international property consulting (IPC) firm in Mumbai recently had a short (5-day) vacation in Bangkok with her husband Sumesh Mishra who works with one of Mumbai's leading real estate firms. The Mishras generally take 5-6 short holidays in a year of which one is international and others are domestic destinations. “We visit places like Lavasa, Delhi, Agra, Dahanu within India over long weekends or during festivities. It really is helpful considering the kind of professional lives we are living these days,” said the Mishras.

The practise of multiple short holidays as against one long holiday appears to have picked up phenomenally in the last over a couple of years. The Indian travel and tourism fraternity is of the opinion that the emerging middle-class, increase in disposable incomes and increased awareness are key factors that are contributing to the increasing trend.

Kashmira Commissariat, chief operating officer - outbound division, Kuoni India, said, “Along with long holidays during the summers, Indians are increasingly taking short holidays whenever possible, either during long weekends, special occasions, festive breaks, etc. International holidays, earlier seen as limited to a fortunate few, are now available off the shelf. Our internal research reveals that short holidays provide travellers an opportunity to relax, recharge and reconnect with the people.”

In fact, travel and leisure sectors have seen immense growth in the last two decades mainly because travel within the country and beyond its shores has come within the reach of large sections of Indians. As a result the industry is witnessing higher double digit growth (20% to 25%) mainly owing to a huge domestic tourism market and an ever growing outbound travel.

The profile of travellers driving this trend generally comprises executives with increased level of stress, working professionals, DINKS (Double Income No Kids). Couples and families are also seen taking short holidays during special occasion like birthdays or anniversaries or even during the occasional long weekend. Breaks during festivals like Durga Pooja, Rakshabandhan, Holi, Pongal, Onam etc are also on the rise.

“There is a huge demand as newer destinations are springingup and people are sharing their experiences using online mediums and social networks. Our estimate is that this market is growing significantly clocking higher double digit numbers. For us, last year, this market segment has seen a year-on-year growth of 30%,” said Karan Anand – head, relationships, Cox and Kings Ltd.

In terms of frequented destinations, the past few years have seen an increased numbers of travellers opting for short breaks to Thailand, Dubai, Malaysia, Maldives, Mauritius. Within India destinations like Ooty, Manali Goa, Bangalore, Kerala, Madhya Pradesh etc are poplular.

As for the duration for mini-breaks is concerned, “A short-break typically comprises a holiday upto four days and three nights or a slightly longer duration. The reason being, during a short holiday the idea is to spend time in leisure, recreation and a bit of exploring around rather than to undertake itineraries,” said Commissariat.

While domestic destinations are pretty much in demand from travellers for their mini breaks during the year, a section of the travellers are increasingly choosing international destinations too.

“They time it with festivals. For example, Thailand is hosting a shopping festival later this month and we have been witnessing god traction (bookings) for Thailand holiday packages especially because they can manage a good deal travelling during the festivities. On the domestic front, sustained promotions by hotels and destinations help boost business. In fact, most of the hotels go to the extent of offering complimentary (free) stays as a part of the package,” said Anand.

Seeing opportunity in short haul holidays, leading travel companies like Cox & Kings, Kuoni / SOTC and Thomas Cook have taken the fast moving consumer goods (FMCG) approach to marketing travel destinations by offering off-the shelf products. These are pre-packed holidays for specific destinations that can be bought from the travel companies at an all inclusive price. Brands like Instant Holidays (C&K) and Box Holidays (Kuoni/SOTC) and Readymade Holidays by Thomas Cook are some of the offerings priced anywhere between Rs6,909 (domestic) to Rs27,790 (international) catering to short holidays.

Walt Disney to buy back UTV shares, delist company

This story first appeared in DNA Money edition on Wednesday July 27, 2011.

Walt Disney is set to acquire a significant majority in UTV Software Communications Ltd, with the intention of delisting it.

Walt Disney Company (South East Asia) Pte Ltd, a subsidiary company, will buy out public shareholders and other promoter holdings (RS Promoters) in UTV for around Rs2,013 crore.

In a filing to the Bombay Stock Exchange (BSE), UTV Software said it has received a proposal from Walt Disney (a promoter of the company) to delist equity shares of the company from the stock exchanges. The board of directors of the acquirer has approved the delisting offer and decided that shares held by public shareholders will be acquired at Rs1,000 per equity share.

Shares of UTV Software closed at Rs950.45 apiece on Monday, up 5.39%, on a day the broader market tanked 1.87%.

Analysts tracking the Indian media and entertainment sector feel the deal is at a 20% premium to Zee Entertainment’s FY12E earnings per share (EPS).

“In the last one year, UTV has traded at a discount to its peers, but has seen a significant run up in the past few months in anticipation of the deal. At Rs1,000, the deal will be done at price-earnings (PE) of 30x FY11 EPS and PE of 25x FY12E EPS, which is a sharp premium to its last three years average PE. It is also at a premium to the leading broadcaster Zee Entertainment which trades at around 22x FY11 EPS and 21x FY12E EPS,” said Rahul Kundnani, analyst, SBICAP Securities.

Disney currently owns 50.44% —- acquired in separate tranches during 2008 —- in UTV Software. It is the first Hollywood studio to have majority shares in an Indian entertainment company.

UTV founders Ronnie Screwvala, Zarina Mehta and various companies held by them (termed RS Promoters) own 19.82% of the current paid-up equity share capital, taking the aggregate promoter holding in the company to 70.26%. The balance 29.74% is in the public domain.

“Such a delisting of a public company in India is a long process and is subject not only to various regulatory approvals but also to a shareholder vote and a reverse book building process, all of which can take several months or more to complete. Given the multiple stages and the nature of the process, a successful outcome is uncertain,” Walt Disney said in an official statement.

In the event Disney is able to successfully acquire sufficient outstanding shares of UTV to delist, Screwvala, the current CEO of UTV, will also sell his shares to Disney and become the managing director of The Walt Disney Company India. “Mahesh Samat, currently managing Disney’s assets in India, will become chief operating officer, reporting to Screwvala,” Disney said in the statement. However, if the delisting is unsuccessful, Disney will consider its full range of strategic options.

Cox & Kings set to acquire specialist travel firm Holidaybreak

In what could be the largest international acquisition by an Indian company in the travel segment, Cox & Kings through its wholly owned subsidiary Prometheon Holdings (UK) Ltd has entered into an agreement to acquire the entire issued and to be issued share capital of British specialist travel company Holidaybreak Plc. To be an all cash deal once concluded, the acquisition price according to C&K will be 432.1 pence per share.

Peter Kerkar, director, Cox & Kings Ltd, said, “The offer price values Holidaybreak’s fully diluted share capital at approximately 312 million pounds which is a premium of approximately 35.5% to the closing price of 319 pence per share of travel company’s closing share price on July 22, 2011.” If everything goes as per plans, the acquisition deal is expect to be completed by September 27, 2011.

Nomura advised the transaction to C&K while Axis Bank is the banker for the deal. For Holidaybreak Citibank was the advisor for the deal.

As per C&K top management, the boards of both companies have reached an agreement on terms of a recommended cash acquisition which will now be implemented by way of a court-sanctioned scheme of arrangement. While C&K already has consent from 31.8% of Holidaybreak’s (institutional) shareholders it still has to get a majority i.e. extent of 75% consent from the existing shareholders to complete this acquisition. 

On funding the acquisiton, Kerkar said, “Around 125 million pounds (from C&K’s balance sheet) will be equity and balance will be debt raised from Axis Bank at an SPV level.”

Holidaybreak also has a debt on its books to the tune of 137 million pounds which is likely to be absorbed by Cox & Kings post successful completion of the acquisition process. “The debt will continue on its books as well,” said Anil Khandelwal, chief financial officer, Cox & Kings.

Earlier, London Stock Exchange-listed Holidaybreak had confirmed the talks in a note to shareholders on Tuesday (July 26, 2011). The company, which provides residential outdoor education and adventure trips for school children in the UK and other major European markets, is valued at £225.24 million, based on its Monday’s closing price.

Holidaybreak had told shareholders the discussions may or may not lead to a cash offer of 432.1 pence per ordinary share, which is at a premium of 18% to the stock’s Monday close.

At this price, Holidaybreak would be valued at over £265 million, or Rs1,900-2,000 crore, though reports in a section of British media had pegged the deal value at £300-450 million.

“We view the offer price of 432.1p as broadly adequate... the main prize for any bidder is the education division,” a Reuters report quoted analyst Sahill Shan of Brewin Dolphin as saying.

Industry experts see the deal getting through, unless Holidaybreak gets a competitive bid.

“Another travel company, TUI Travel, was initially rumoured to be a potential bidder. Its management has, however, ruled out making an approach. With no potential suitor in sight, it is very likely that the deal will get through in C&K’s favour,” said the head of travel research at a leading consultancy firm.

Analysts feel the acquisition will stand Cox & Kings in good stead in the international travel market, given the growth in outbound traffic.

International arrivals not significantly impacted post Mumbai serial blasts

Mumbaikars' resilient attitude seems to be having a rub-off effect on foreign / international travellers visiting India and Mumbai on work or leisure. While the city bounced back the day after three serial bomb blasts shattered its peaceful atmosphere, the same was true for companies in the hospitality, travel and tourism sectors where it has been business as usual in the ensuing days.

A host of hotel and travel companies spoken to have confirmed that there has been no noticeable impact on their businesses and travellers – both international and domestic – are continuing with their plans of visiting Mumbai.

Dilip Puri, Managing director - India, Starwood Asia Pacific Hotels & Resorts, said that no travel advisories from various counsulates helped maintiain a status quo as far as international business for hotels and travel companies is concerned. 

“Hillary Clinton did not cancel her India visit which has helped instil confidence in a lot of other foreign travellers to continue with their travel plans. We are closely monitoring the situation with our Mumbai hotels and I must tell you that cancellations (if at all) are very insignificant as compared to what was witnessed earlier especially post the 26/11 terror attacks. We are seeing resilience in the Mumbai market and the recent blasts in Mumbai have had no impact on business travel in the city,” said Puri.

Ajay K Bakaya, executive director, Sarovar Hotel & Resorts is of the opinion that while the bomb blasts were very unfortunate, its impact on the hospitality and travel businesses isn't visible because it's non-peak season as far as leisure travel into the country is concerend. 

“Corporate business travel hasn't got impacted at all. Business in our Mumbai hotels is in tune with the current season. Our north Mumbai hotels are doing 70% occupancy with average room rates in the Rs 7,000 to Rs 7,500 range while it is Rs 8,500 for our south Mumbai hotels with occupancies at 75%. In fact, the rates being quoted are 5% to 7% higher as compared to the same period last year ad we are expecting the room rates to go up by another 7% in the winters,” said Bakaya.

Bakaya's observations find support from the the travel industry fraternity which feels that the terror incident happened in the leanest of the lean season and hence the impact was not so significant. 

“Business across the country generally starts picking up post September when corporates increase their frequency of travel which clearly shows up in the demand for hotel rooms in the September to March months. During monsoons, Mumbai gets a lot of travellers from Middle East who combine their travel with health / medical treatments which is unavoidable and they have to travel. Having said that, travel advisories are always an issue during such situations and it could possibly impact future bookings,” said Ashwini Kakkar, executive vice-chairman, Mercury Travels.

Besides, the serial bomb blasts were not at a high scale as compared to the 7/11 incident in 2006 or for that matter the 26/11 terror attacks in 2008 and hence travel advisories were not issued. 

Karan Anand, head – relationships and supplier management, Cox and Kings Ltd said, “The US and UK counsulates have told their citizens to be cautious instead of issuing advisories. The international travellers are not overly worried about the nature of terror activity happening these days and are taking their own decisions. No significant impact has been witnessed on foreign or for that matter domestic corporate travel.”

Oberoi Realty takes Centaur hotel litigation to high court

Having lost the arbitration proceedings related to acquisition of Centaur hotel at Juhu (Mumbai), Oberoi Realty managing director Vikas Oberoi is set to challenge the decision in high court.

The Oberoi Realty management in a company announcement filed with the Bombay Stock Exchange (BSE) said that Siddhivinayak Realties P Ltd (SRPL) has filed an arbitration petition in the high court of Jurisdication at Bombay, seeking an injuction against V Hotels. Simultaneously, the joint venture firm is reviewing the matter and will pursue legal recourse / remedies as may be available, in consultation with its legal counsel.

A company spokesperson, when contacted, refrained to comment on the subject.

Oberoi Realty's wholly owned subsidiary company Oberoi Construction Ltd is a 50% joint venture partner in SRPL. Among other shareholders in the company include Shahid Balwa (promoter of 2G scam-tainted realty company DB Realty Ltd) and Vinod Goenka (promoter and managing director of DB Realty Ltd) who own 49.5% in the company.

Industry experts are of the opinion that Oberoi Realty will not give up on this asset so easily and that the realtor will pursue the matter irrespective of how much it takes the company to bring this asset into their portfolio. “The site is a very strategic in terms of location and knowing Vikas' approach to business, he would never let go off the opportunity to own this project. I think they would probably keep the site under litigation for as long as possible thus refraining the current asset owning company (V Hotels) from undertaking any development activity,” said an source familiar with the development.

In March 2005, SRPL had entered into an agreement with V Hotels Ltd (which acquired the said property for Rs 153 crore as part of BJP government's disinvestment process) for purchase of the Centaur hotel for Rs 387.5 crore. Citing irregularities in the deal, a CBI inquiry was initiated and the deal eventually went under arbitration following a dispute between the parties.

The latest arbitration ruling has terminated the agreement between V Hotels and SRPL directing the asset owning company to refund Rs 73 crore against around Rs 75 crore paid by SRPL till date. The refund will have to be made by V Hotels within 90 days of the ruiling i.e. by October 12, 2011.

Analysts tracking Oberoi Realty have valued the company's 50% stake in the project at 1x book value of investment. “We see minimal impact of the ruling on our valuation and maintain 'buy' on the stock with a target price of Rs 288 per share,” said Aashiesh Agarwaal and Adhidev Chattopadhyay, analysts with Edelweiss Capital in their report.

On Tuesday, the Oberoi Realty stock had reached an intra-day high of Rs 245 and closed at Rs 234.5 – down 0.21% as against the previous day's closing price of Rs 235.

Centaur hotel Juhu is owned by V Hotels wherein BSE-listed Tulip Star Hotels Ltd holds 50% stake and the balance is owned by Tulip Hotels Pvt Ltd. The latter (Tulip Hotels) is promoted by Ajit Baburao Kerkar the erstwhile chairman and managing director of The Indian Hotels Co Ltd (IHCL) popularly known as Taj Group of hotels.

BSE-listed travel company Cox & Kings Ltd with Peter Kerkar (Ajit Kerkar's son) at the helm of the affairs owns 32% stake in Tulip Star Hotels Ltd (the listed entity) in addition to a Rs 18 crore exposrue in the form of fully convertible deventures (FCD) – a type of debt security convertible into equity shares at the issuer's notice.

When inquired about the impact, this development would have on C&K's business, the company spokesperson said that the topic under discussion has nothing to do with the travel company and that it will have to be sorted out between V Hotels and SRPL.

By the end of trading session on Tuesday, shares of Cox & Kings had reached an intra-day high of Rs 221.5 closing at Rs 205.95 as against its previous close of Rs 192.9 – up by 6.77%.

Will Zaveri Bazaar move to Surat?

This news story first appeared in DNA edition on Saturday July 16, 2011.

It might be premature to say the country’s financial capital will have to part with diamonds but three blasts in Zaveri Bazaar, the diamond trading hub, and better infrastructure in Surat might change the traders’ hearts.

Mehul Choksi, chairman and managing director of the Geetanjali Group, admitted that Surat has the potential. Gujarat is already processing all the country’s diamonds “but it would be little too early to say it might turn into a hub for the diamond trading business”, he said.

“Relocating base is time-consuming and a painful process. I guess that is why the shifting from Opera House (Pancharatna and Prasad Chambers) to Bandra Kurla Complex is still going on despite the security risk here.”

Sanjay Kothari, vice-chairman of The Gem and Jewellery Export Promotion Council (GJEPC), said relocating to Surat could happen. “But there are over 2,000 families connected with the diamond trading business in Mumbai,” Kothari said. “It will not be possible to relocate all of them to Surat for personal and professional reasons. But the situation might change some years down the line and it could make sense then.”

Over 90% of world’s diamonds are cut and polished in Surat, the commercial capital of Gujarat. The customs clearance centre in the city, Surat Hira Bourse (SHB), operational since 1994 facilitates direct import and export of diamonds.

Also, the Surat Special Economic Zone (SurSEZ) has over 150 export oriented units, a significant percentage of them being from the diamond processing and jewellery making segments.

Shashikant Bhai Shah, diamond trading consultant with BM Gems, said Mumbai has traditionally been the trading and sorting hub for diamonds. “But Surat offers several advantages considering all the cutting and polishing is done there,” Shah said. “Combining it with trading and sorting would save traders save time and money on transporting the precious stones.”

Though Mumbai remains a terrorist soft spot, it has direct international connectivity, which is vital for an export oriented business like diamonds. And that is where it scores over Surat.

Talking about direct international connectivity, Mundra Port & Special Economic Zone (MPSEZ), a company promoted by Ahmedabad-based billionaire Gautam Adani, plans to build an international airport in Mundra. The company sent a proposal to the Board of Approval (BoA) in September last year. If the proposal is approved, MPSEZ will become the country’s first multi-product SEZ to have an international airport within its limits.

The possibility of shifting to Surat cannot be ruled out but manufacturing and trading do not generally happen at the same place in the country, Shah said.

Phase III of FM radio rollout gets go-ahead

This news story first appeared in DNA Money edition on Friday, July 8, 2011.

Radio buffs stay tuned in, the fare’s getting bigger.

The Cabinet on Thursday approved the information and broadcasting ministry’s proposal for expansion of FM, or frequency modulation, radio broadcasting services in the country.

Under the proposals —- the third phase of expansion, or FM Phase-III, policy —- FM radio services will be extended to about 227 new cities, in addition to the existing 86, with as many as 839 new FM radio channels covering 294 cities. In fact, all cities with a population of 1 lakh or above will be covered by private FM radio channels in this phase.

The rollout is expected to fetch Rs1,733 crore in revenue for the government.

Industry players welcomed the announcement.

The policy allows radio companies to expand their network, put a revenue multiplier in place and make radio a healthy and profitable business, said Tarun Katial, CEO, Reliance Broadcast Network Ltd (RBNL). “Some of the things the government has been able to resolve in Phase-III were actually the key issues for the industry and it looks like a policy that can bring about the transformation that radio desperately required, starting with the foreign direct investment limit being raised to 26% from 20%,” he said.

Ashesh Jani, partner, Deloitte Haskins & Sells, said the policy will give a boost to the sector. “More so because this opens an investment opportunity to many in an era of an uncertain stock market and limited vistas of investments.”

According to Jani, for both radio station owners and advertisers, spreading to newer cities amounts to tapping an untouched market.

Multiple licensing is another provision the industry has welcomed, saying it will lead to varied offerings such as sports, news and cultural affairs, helping expand radio’s reach further.

FM channels have now been allowed to carry news content sourced from All India Radio and give public service information, such as information on sports, traffic, weather, exam results, admissions, career counselling and job opportunities. Announcements concerning civic amenities, such as electricity, water supply, natural calamities and health, can also be broadcasted.

But there’s a catch —- the private players will most likely have to buy news content from AIR.

Harrish Bhatia, COO, MY FM, conceded as much: “The FM radio channel business will continue to be under stress, unless the music royalty issue gets resolved completely. We have been demanding extension of licences for 15 years and we still have no clarity on the same. Buying news content from AIR is also something that needs to be looked at differently.”

Also, though private operators can own more than one channel, they cannot own more than 40% of the total channels in a city.
Not everyone, though, is excited about the multiple-licensing provision, considering radio is still not a viable business. “I really don’t understand the logic behind multiple licensing in such a scenario. Besides, there are a few unresolved issues and I don’t think there would be many takers for this multiple licensing offer from the government,” a senior official at a FM radio company said on the condition of anonymity.

The government’s target of raising Rs1,773 crore from Phase-III rollouts, though, is seen as reasonable. “If there are over 400 frequencies coming in, I think it’s really worth the money,” said Katial.

But it is also a significant development for the Rs1,200 crore radio industry, feel analysts.

“Currently, the radio industry is relatively small but witnessing robust growth of over 20%. With the introduction of Phase III, the growth rate can go up to 30%. The share of radio in total advertising stands at 5% and is expected to increase to over 7% post Phase III. The development will further boost the strong performance of the leading players, which are expected to see 12-15% advertising rate growth accompanied by a double digit volume growth in FY12. The only concern is high bidding, which will impact the profitability of the players as it is an extremely cost sensitive business,” said Rahul Kundnani, analyst, SBICAP Securities Ltd.

The policy announcement also clears concerns over the government’s allocation approach. It outlines the conduct of ascending e-auction as followed by the telecom department for sale of 3G and BWA spectrum, with necessary changes, for award of FM channel licences.

“The route of auctions has not been cleared yet. We are hoping that it would be rational and the government will have enough spectrum in the market to keep it affordable,” said Katial.