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.”

L&T stuns St, says competition hot as orders vanish

This story first appeared in DNA Money edition on Saturday October 22, 2011.

Larsen & Toubro (L&T) on Friday cut its order growth guidance to 5% from the 15% it had envisaged at the beginning of this fiscal, citing a slowdown in investment momentum and cut-throat competition for orders.

R Shankar Raman, chief financial officer, L&T said the reassessment was necessitated as decisions related to new projects were being deferred. “At the moment, our best guess is that the conditions are going to remain as challenging as they are today and it is quite likely that the growth will be around 5% rather than the targeted 15% earlier,” he said.

The engineering and construction industry has seen considerable slowdown in investment momentum in the last 6-8 months.
Adding to the troubles is the competitive business environment wherein fewer projects are coming up and as such are being fiercely fought for.

“As a result, win rates are dropping for all the participants in the sector and L&T is no exception. Considering this situation and the policy initiatives that are required to be taken to fast-track some of these investment programmes and the confidence that has to be re-found in the business community, we do think we will lose much of the remaining six months in this process of discovery,” said Raman.

As for the engineering and construction behemoth’s revenue growth outlook of 25% for this fiscal, the management said revenue visibility was better than accretion in the order pipeline since 82% of its revenues came from the order backlog.

“Our assessment tells that we should be able to maintain the guidance in so far as the revenue is concerned. The 15-18% of fresh orders that we were banking on to be able to get the revenues up to its full 100% level, despite the correction in the order inflow that we are accessing today, we think should survive. Hence, our assessment now is that the revenue guidance should stay,” said Raman.

For the quarter ended September, the management said new orders fell 21% to `16,096 crore while the total order book was at Rs142,185 crore. Net sales for the quarter were up 19.3% at Rs11,245 crore, while net profit rose 15% to Rs798 crore, including extraordinary gains of `70.8 crore from sale of shares in Mahindra Satyam.

Finally, tipping point for cable TV

This story first appeared in DNA Money edition on Friday October 14, 2011.

A paradigm shift is nigh for India’s television distribution industry, where for years unscrupulous local cable operators have under-declared subscriptions, causing huge revenue losses to broadcasters and platforms.

Over the last five years, while direct-to-home (DTH) has flourished in an environment of voluntary digitisation with around 35 million subscribers, digital cable has stayed laggard.

“The pain in digital cable has only further intensified in the last 9-12 months, when multi-system operators (MSOs) such as DEN and Hathway have added less than 0.5 million subscribers in spite of being adequately capitalised. The ‘hope’ of the regulatory support was a critical reason for this delay,” said Nikhil Vohra, managing director, IDFC Securities Ltd.
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Interestingly, of the 225 million-or-so households in the country, an estimated 20 million are in the metros covered in Phase-I of the digitisation ordinance issued on Thursday.

The rural skew also shows in the DTH pie, with only 9 million out of a total 35 million subscribers from urban areas.

Among other players, Dish TV is expected to extract a sizeable pie from the metros in a mandatory digital environment. Nationalised MSOs such as Wire and Wireless (WWIL), DEN and Hathway are also likely to see sharp increases in their delta gains.

Dish and WWIL are Zee Group companies, which also co-owns Diligent Media Corporation, which publishes the DNA.

“Against a backdrop of extremely poor execution and muted subscriber addition of less than 0.5 million subscribers annually, we now foresee a near three-times jump in digital subscriber addition in the next 12-18 months. This will ensure a sticky base for MSOs ready to monetise,” said Vohra.

“It’s not that companies were not investing into the business earlier,” said, Smita Jha, consulting head - entertainment and media, PwC. “They never had a say as the end-user was free to choose between analog and digital cable, which will not be the case now thanks to mandatory digitisation with defined timelines,” she said.

Locals forced to digitise; better Arpus
Local cable operators (LCOs), which had limited incentive to digitise or partner with MSOs earlier, will now be compelled to undertake digitisation.

“With limited access to capital as also ability to digitise their own network, LCOs are now bound to partner with MSOs. This, coupled with digitisation with addressability, will lead to addressal of the biggest bane in the cable distribution industry — under-declaration (of subscribers),” said Vohra.

Both DTH and digital cable operators will benefit as DTH companies were earlier competing with analog cable operators owing to lower average revenue per user (Arpu) on cable networks. “The Arpu was in the Rs 100-200 range. As a result, DTH companies could not increase their prices. Digitisation would lead to an increase in cable operator and DTH Arpus. It’s a win-win for everyone. While set-top box prices at Rs 1,000-1,200 may look on the higher side in case of digital cable, these prices are declining and will come down further in the coming years. This will be a key factor for digital cable operators looking to grab market share in non-metros, the deadline for which has been set for 2013 and 2014,” said Jha.

Consolidation ahead
Once the key metros get digitised, there will be some amount of transparency in the market in terms of revenue declaration, which will instill confidence in the investor community to participate in the fundraising plans of various players in the industry.

Keeping in mind the funding requirement, a proposal to increase foreign direct investment (FDI) limit in the C&S industry has been mooted already. Once the Cabinet approves a hike in FDI limit to 74% from the current 49%, experts feel it will lead to realignment of the cable and satellite business, spurring mergers & acquisitions.

From a consumer perspective, digitisation will make cable more competitive vis-a-vis DTH.

Now order a pizza on cable
For one, cable would have an interactive two-way communication system and hence a lot of value added services (VAS) which are not possible on DTH.

How about ordering a pizza over cable and receiving a confirmation from the pizza guy, for instance?

There would also be other VAS offerings like digital video recorder, pay per view, broadband internet and IPTV, bringing cable on par with DTH.

The monthly outgo, in addition to purchasing set top box, is likely to remain the same for a bulk of consumers, though it could be higher for those opting for expensive pay channels.
To a large degree, therefore, it will come down to quality of picture and programming, availability of channels, value-added services and of course pricing of the services which is key driver in a country like India.

More capital needed
On the flipside, for the cable operators, the mandatory digitisation will increase the capital requirements.

According to Jehil Thakkar, head media and entertainment practice, KPMG, all the cable companies will now have to think about where the funds are going to come from —- internal accruals, fund raising or take on debt, etc.

“We have estimated overall capex (entire infrastructure cost including set top box and optical fibre cable) for the industry to be around Rs 20,000 crore in the next 3-4 years. Given the state of the market, companies will have to raise money either through private equity or debt while some of the public ones can explore market-based options,” said Thakkar.

Interestingly, while DTH players like Dish TV and Reliance TV already have separate entities —- Wire and Wireless and Digicable, respectively —- to address the cable TV market, there is a possibility of other players also adding cable operations to their business. “This approach will broaden their offerings for the different geographies/ markets in addition to building on the competitive advantage. This could happen through both organic and inorganic routes,” said Thakkar.

Players cheer
Dish TV has hailed the move as a positive one. “This ordinance will certainly help the DTH industry much more than other forms of distribution,” said Salil Kapoor, COO, Dish TV India, adding that DTH has emerged as the platform of choice across all population and socio-economic strata.

According to Sudhir Agarwal, CEO, WWIL, the entire cable TV universe will be converted to digital homes, thus reducing under reporting, bringing in transparency and resulting into boost in subscription revenue.

“Digitisation of existing cable infrastructure will augment the channel carrying capacity, offer better quality and will provide further scope for delivering various value added services. A multi-fold increase in subscriber number is expected. Such exponential growth in subscriber numbers requires huge infrastructure to serve them as well, for which WWIL is well positioned.

M G Azhar, president - strategy and business development, DEN Networks Ltd, feels the initiative will create a paradigm shift in the pay distribution industry and alter the fundamentals of the media sector. “The transition will see the entry of more channels, the spread of broadband and triple play offerings and ultimately a transformation in how households consume content and entertainment in this country,” he said.

Harit Nagpal, CEO, Tata Sky, said it will help transform the sector into an organised industry. “It will aid the organisation of the Industry and result in clearer subscription figures for broadcasters,” he said.

Cabinet nod for full digitisation of cable services

This story first appeared in DNA Money edition on Friday October 14, 2011.

Cable television services in towns and cities across the country will go completely digital in the next three years, the government said on Thursday. The cabinet committee of economic affairs has cleared a proposal for digitisation of cable services in all metros by 2012 and other urban areas by 2014, information and broadcasting (I&B) minister Ambika Soni said.

At present, while there are several direct-to-home and multi-system operators in the urban areas, analog systems also abound, leading to issues of transparency and control.

The ordinance will allow the I&B ministry to insert a clause in section 4A of Cable Act, thereby making a digital addressable system mandatory in the cable sector. This will have to be done in four phases as recommended by the I&B ministry and the Telecom Regulatory Authority of India.

"Cable operators will have to abandon analog in the four metros by March 31, 2012. Cities with a population of one million will be covered by March 31, 2013. All urban areas would be covered by September 30, 2014. The entire country will be covered by December 31, 2014," said Soni.

The ordinance will now pass through the law ministry to the president for a final signature, post which it would be ratified by Parliament within six months.

The cable and satellite television industry has hailed the initiative as a game-changer.

Mandatory digitisation is expected to reduce revenue leakage in the system where the level of under-declaration of subscribers and revenues is said to be as high as 80%. With compulsory digitisation, errant operators can no longer fake the numbers.

Experts feel the initiative is a win-win across the value chain. Cable operators benefit as capacity constraints are removed and they are able to offer more channels by going digital, thereby boosting subscription revenues.

Additionally, they get to offer a host of value added services such as movie-on-demand, electronic programming guide, internet and high-definition channels as additional revenue streams.

For the broadcasters, on the other hand, the initiative means a reduction in the carriage fees they need to pay cable operators to ensure their channels are beamed in a certain locality.

As for the end-consumer, there is an assurance of greater variety and better quality of content. Indeed, it is likely there would be an explosion of channels as even niche plays become viable.