Phoenix replaces hotels with residences

This story first appeared in DNA Money edition on Saturday, January 28, 2012

Phoenix Mills Ltd (PML), multi-use integrated property developer, is replacing hotel development plans of its hospitality subsidiary with residential due to change in economic scenario since 2007 when the projects were first planned.

Majority of the hotel plans of Phoenix Hospitality Co Pvt Ltd (PHCPL), including the one in Mumbai, have been changed to residential, commercial-cum-retail and residential-cum-hotel developments.

Interestingly, the commercial and retail spaces will be created for sale.

Shishir Shrivastava, group CEO and joint managing director, PML, said, “The environment has changed drastically since then (2007) and Phoenix Hospitality is not developing a few of these land parcels it held as hotel projects. As a result, certain formats have been changed to make the projects more viable. The idea is to monetise the land parcels by developing assets to be sold, replacing hotels which would have eventually ended up debt heavy.”

As per the changed plans, while the Pune land parcel will continue with residential development, the site earmarked for a hotel in Mumbai will be replaced with retail-cum-commercial space.

Similarly, the hotel project at PHCPL’s Bangalore (West) land parcel will be replaced by almost 1 million square feet of residential development. In Chennai, it will be a combination of residential and a small boutique hotel as against a hotel project. PML will, however, construct a 150-room hotel at Agra, as per earlier plans.

PHCPL was set up in 2007 as a special purpose vehicle, through which PML owned stakes in many assets (land parcels) across the country. A majority of these developments were earlier planned to be hospitality assets.

Under the original deal in 2007, PML was to invest Rs350 crore for raising its stake in PHCPL, which then had land parcels worth Rs120 crore.

Since then, PML has invested Rs154 crore in PHCPL and the funds were with the company as share application money.

PML has an option to invest another Rs200 crore and increase its stake to 75% in PHCPL from 56% now.

As for new projects, PML will launch a phase-wise residential project in June 2012 in Bangalore.

Spread across 16 acre, it will comprise nine towers of 30 floors each with two apartments on each floor. In all, the development will house 1,300 residential apartments of 2 and 1/2 BHK and 4-5 BHK, targeting the premium and luxury market segments.

Hero set to launch an Edition with Marriott

This story first appeared in DNA Money edition on Thursday, January 26, 2012.

Hero Group, India’s largest two-wheeler maker, is in advanced stages of discussion with New York Stock Exchange-listed Marriott International Inc to launch the global hospitality major’s ‘Edition’ hotel brand in India.

Industry sources said the creator of Edition, Ian Schrager — who is also known as the godfather of trendy boutique hotels globally — was in India last week for a discussion with the Munjals.

“He (Schrager) also visited their recently acquired cold shell in Gurgaon to get an idea of the site and its suitability for the Edition brand. The latest on this is that officials from Marriott and Hero Group are currently working on the finer details of their arrangement and an announcement to this effect can be expected soon,” said a source familiar with the development.

A Hero Group spokesperson did not respond to repeated calls and text messages.

Marriott International’s India office, however, confirmed the development.

“We are in discussions with them (Hero Group) and Ian Schrager was in the country recently to discuss the possible association. We are in the process of finalising the details. The team is currently working on the hotels design element and we are hopeful to start work on the project in another six months from now,” said Navjit Ahluwalia, senior vice president - hotel development (India and subcontinent), Marriott International.

With 250-280 guestrooms and a host of other facilities, the Gurgaon Edition will mark Hero Group’s foray in the Indian hospitality market. The hotel, to be operational sometime in late 2013-14 or early 2014-15, is being developed on a 3.9 acre plot that was acquired by Hero Group through a bidding process organised by Punjab National Bank.

The overall cost of getting this project operational would be Rs650 crore, Pankaj Munjal, managing director of Hero Motors, had said in an earlier interaction.

Edition's global development pipeline include hotels in six major global gateway cities on three continents by 2015. Among various locations being identified include one of Manhattan's (New York) landmark buildings – the Clock Tower, a historic building formerly known as the Berners Hotel in London and a hotel under construction in the former Seville Hotel at the Miami Beach location. These projects are owned and operated by Marriott International in an attempt to reflect confidence in the brand's future growth and success.  Hotels to be operated purely under management contract include under construction properties in locations like Bangkok, Abu Dhabi, Los Angeles and Gurgaon (India).

On the competitive set for Edition, Ahluwalia said the brand currently has no competition in the market and is addressing a space that has been left untapped / not captured yet by most global hotel companies. Interestingly, the Edition hotels will be operated by Marriott’s Ritz Carlton management team with the promise of offering a completely distinct level of service.

“Edition hotels are very unique properties addressing the next generation’s needs. We have been looking for partners who want to own a distinct customised hotel that customers will be looking for in the coming years. I think Munjals have that kind of a vision and they have already demonstrated it in some of their other businesses,” said Ahluwalia.

On the possibilities of a multi-property arrangement with the Hero Group given they have historical land bank in the country, Ahluwalia said, “Once we have a good relationship / partnership, we will explore other markets to go in to, together and do more Edition hotels across the country.”

Given the potential, Marriott International is optimistic about having more Edition branded hotels in the Indian hospitality market. “In fact, Schrager during his recent visit could very clearly feel the excitement in the Indian market for a customised luxury hotel. We certainly feel the markets of Mumbai, Bangalore and Goa would be ideal locations for future developments,” said Ahluwalia.

When asked if Marriott will take the investment route like the hotel company did in New York and London, Ahluwalia said, “We are not shy of investing in the Indian hospitality market and have already committed $30 million for the development of Fairfield brand with SAMHI Hotels Pvt Ltd. While our model has always been management contracts, we do invest wherever we feel there is a need for it. The Edition hotels in New York and London are owned by Marriott and we will eventually get an equity investor to buy these properties while we retain the management contract.  I think India has so many wealthy individuals who would want to own unique luxury lifestyle properties negating our need to invest. Instead, we are focusing on the right asset partners with ideal locations that can sustain a product like Edition.”

Introduced in 2008, the Edition brand is positioned as luxury lifestyle hotels combining the personal, individualised and unique experiences that Schrager is known for globally. The Istanbul Edition is the only operational project at present under this brand. In fact, media reports also indicated that another Edition development in Honolulu moved out of the network in August 2011 and its asset owners (M Waikiki LLC) had subsequently sued Marriott, saying the company had not developed the brand as much as promised.

Oriental Hotels exits Roots Corp

This story first appeared in DNA Money edition on Thursday, January 26, 2012.

Oriental Hotels Ltd (OHL), a subsidiary of Indian Hotels Co Ltd, has exited its investments in Roots Corporation Ltd (RCL), which owns and manages budget hotels under the Ginger brand.

The Compulsorily Convertible Preference Shares (CCPS) held by OHL were acquired by Singapore-based Omega TC Holdings Pte Ltd.

Anil P Goel, executive director - finance, IHCL, said the CCPS buyout has been converted and the entire deal is over.

“We had some investment from OHL in Ginger hotels so they have exited,” he said without giving details about other entities that exited though the CCPS conversion route. The deal is understood to have concluded sometime in the second half of 2011.

OHL is the Chennai-based associate company of Tata Group promoted Indian Hotels Co Ltd (IHCL) which owns eight hotels operated under Taj, Vivanta and Gateway brands across various south Indian cities.

The OHL deal was a part of Omega’s arrangement with IHCL announced in March 2011, under which the investment firm was to acquire the CCPS held by some existing holders for Rs70 crore.

Under the deal, Omega had also agreed to invest Rs150 crore in tranches for a minority stake, taking its overall investment in RCL to Rs220 crore.

Meanwhile, IHCL has posted a marginal increase in its net profit at Rs50.48 crore for the third quarter ended December as against Rs50.29 crore posted in the same period of the previous fiscal. Net sales rose 7.44% to Rs521.48 crore.

As costs bite, companies step up in-house recruitment

My colleague Promit Mukherjee is the co-author of this story which first appeared in DNA Money edition on Tuesday, January 24, 2012.

The slowdown appears to be pushing corporates to cut corners anywhich way possible.

That includes filling key positions with in-house talent rather than go for lateral hires.

The idea, experts believe, is mainly to save on costs they would otherwise incur by outsourcing the process to professional staffing and executive search firms.

The phenomenon is picking up slowly.

However, staffing and executive search firms operating in the outsourced recruitment business feel it is a matter of concern as it is eventually going to impact their business, which is already under pressure owing to a decline in the overall recruitment activity.

Dony Kuriakose, director, Edge Executive Search P, said more and more companies appear to be taking this route and that is likely to take shape of a trend as other companies are following suit.

“There were fewer companies earlier using internal human resources talent to do the sourcing and recruitment of candidates. Our interaction with a host of companies, however, indicates that the number of such companies is increasing and is likely to increase if the economic environment continues to deteriorate further,” said Kuriakose on the sidelines of the Seventh CEO Conclave organised by Executive Recruiters Association (ERA), which is a non-profit Chamber of Commerce representing more than 200 Indian executive recruitment consulting firms.

While using internal resources to hire people is being done across levels, the approach is more visible while filling entry-to-mid level positions.

“In fact, there are a few companies which have used this approach to identify and recruit top-level positions as well, though the number of such organisations is very small,” said Nikhilesh Mehta, CEO of the Pune-based Krehsst Recruitment Solutions.

While companies operating in the information technology and information technology enabled services sectors appear to be doing it more often, others in the pharma and life sciences, among others, have begun using internal HR resources to fill positions in their respective organisations.

Amit Zutshi, partner - commercial advisory services and transaction advisory services, Ernst & Young P, however, feels the outsourced recruitment fraternity should not worry much about this development.

“I think it is a very sporadic and seasonal trend adopted with a short-term view of saving on costs. There are companies who have tried doing it under stressed business environment in the past and there will be a few who will try doing it again,” he said.

Another challenge faced by the staffing and recruitment firms is the fact that companies have started asking them to scale back their fees per candidate.

The reduction, according to industry players, is 10-15% of the earlier agreed sum.

Vipul Varma of Focus Management Consultants P chipped in, saying companies indeed are bringing down fees for staffing and recruitment services. “For instance, if a company was using more than one recruitment consultant to fill the vacant positions earlier, consultants have started taking the assignments as an exclusive mandate while reducing their charges. The reduction in remuneration to a great extent gets hedged by the increase in the number of candidates being hired,” he said.

Dutch retailer Spar eyes more tie-ups to expand

This story first appeared in DNA Money edition on Thursday, January 19, 2012.

Spar International, one of the world’s largest independent food retail chains, is scouting partners to tap newer markets in India with its supermarket and hypermarket stores.

The company currently has 10 operational stores in India under a licensing agreement with Dubai-based Landmark Group’s Max Hypermarkets India Pvt Ltd.

Under the licensing deal, Spar offers knowledge transfer and international best practices, while the Indian partner takes on the responsibility of the entire business operations including capex outlay, day-to-day operations and management control.

Gordon Campbell, managing director, Spar International, said, “We are exploring new partnerships for expanding presence in India, especially in the eastern and southern regions.” Campbell was in India to participate in the Retail Leadership Summit organised by Retail Association of India.

The company has already tasted success with this approach in countries such as China and Russia and is confident of replicating it in the Indian market.

Asked whether discussions have been initiated with prospective partners for the new regions, Campbell said, “We intend to get on with that exercise soon. The partnerships will be for both large supermarket stores spread across 1,000 square metres (10,763 sq ft) to the standard range of hypermarket stores.”

Spar’s hypermarket stores generally occupy retail space between 3,000 square meters (32,291 sq ft) and 7,000 square meters (75,347 sq ft).

The Dutch chain’s India business is pegged at euro 70 million and currently has 10 stores — three in Bangalore, two in Hyderabad and one each in Mangalore, Coimbatore, Delhi, Pune and Gurgaon.

Of the 10 stores, five were added last year. The company will open its second store in Pune next month. Spar has set a target of 20 operational stores within the next three years.

“We have had a great response for our retail stores in India and it is quite heartening that majority of these outlets are profitable. A few new ones will enjoy that status after completing six months of business from the time of their launch,” he said.

On the company’s expansion plans with Max Hypermarkets, Campbell said, “There are over 20 retail sites for new Spar stores in active consideration across the geographies outlined in the licence agreement with them.”

Clearwater Capital Partners circles Kamat Hotels

This story first appeared in DNA Money edition on Thursday, January 19, 2012.

Investment firm Clearwater Capital Partners will be coming out with an open offer for shareholders of Kamat Hotels (I) Ltd (KHIL) to acquire another 26% of the share capital. This has become necessary after the firm exercised its right to convert the final tranche of 5,966 foreign currency convertible bonds (FCCBs).

Clearwater has offered to acquire 4,964,283 equity shares representing 26% of the post-conversion paid-up equity and voting capital at a price of Rs135 per share. The offer will open on March 6 and close on March 20.

KHIL promoters currently hold 51% in the company, which will creep up to 57%, post the merger exercise. The management had earlier said that it’s in the process of merging other promoter-owned businesses, including thehighly profitable restaurant operations and Lotus Resorts, into itself. This, the firm said, would lead to an integration of hospitality and food and beverage verticals, with strategic assets acting as a growth platform.

A successful open offer could give Clearwater Capital Partners (Cyprus) some management control, but that’s easier said than done as the KHIL promoters won’t be in a mood to dilute their holding in the company any further. In such a scenario, Clearwater Capital will only remain a significant minority shareholder.

Clearwater’s decision, according to the management, is positive for the balance sheet of KHIL as approximately Rs93 crore of debt gets converted into equity, besides substantially reducing the interest burden. It will also improve the company’s debt equity ratio from 2.86:1 (before FCCB conversion) to 1.61:1 (post conversion). KHIL’s market cap at conversion price of Rs125 per share will jump by Rs135 crore.

Thomas Cook denies move to sell stake

This story first appeared in DNA Money edition on Friday, January 13, 2012.

Thomas Cook India (TCIL) said its UK parent has no plans to sell stake in the Indian business.

Media reports had earlier indicated that the Indian unit’s founders—Thomas Cook UK and TCIM Ltd — have pledged their TCIL’s 77.1% stake in favour of Royal Bank of Scotland (RBS) and that RBS has been engaged to find a buyer for the Indian unit.

“Thomas Cook India will not comment on any market speculation,” a company spokesperson said.

In a media statement, Madhavan Menon, managing director, Thomas Cook (I) Ltd, said, “The creation of a pledge by Thomas Cook Group Plc is a standard requirement in procurement of its enhanced financial facilities. In fact, TCIL has been reaffirmed with a rating of A1+ for short-term borrowings and AA- for its long-term debt by Crisil. This is a clear indication of our strong and viable commercial standing. I would like to re-iterate that the statement issued by Thomas Cook Group Plc has no impact on TCIL’s financial position or operational performance.”

Thomas Cook India officials maintained that it is completely independent of the parent. The standalone entity and has no financial inter-dependencies with Thomas Cook Group Plc which is only a shareholder in the Indian unit.

According to Pawan Agrawal, director, Crisil Rating, the recent rating action on Thomas Cook India was a reaffirmation of an already existing one.

“Like any other rating, reaffirmation has been done after analysing the company’s business and financial risk profile on a standalone basis. We expect that the Indian entity will neither receive nor provide any financial support to its UK parent. TCIL has a healthy and stable business profile coupled with average debt protection metrics — this is indicated by a comfortable gearing of 0.85 times as at December 31, 2010 —the gearing continues to remain at similar levels at the end of September 2011 as well.”

Crisil also said that while the UK parent has a weak credit profile, the Indian entity continues to enjoy a good credit profile which is unlikely to be affected even if the sale happens. For nine months in 2011, TCIL registered net revenues of Rs286 crore and the profit figure stood at Rs51 crore.

Thomas Cook Group Plc had earlier said that a pledge has been created on the securities held by the promoters, TCIM Ltd and Thomas Cook UK Ltd in Thomas Cook (I) Ltd of their total shareholding of 163471449 shares, representing 77.11% of the issued share capital.

TCIL claims to have registered impressive growth in the last summer holiday season and will continue to see strong demand for all their products.

“Our forward bookings are showing strong demand on the holiday side as well. This development (pledging of shares) will have no impact on our business, people, customers, suppliers and the services we provide. We continue to operate business as usual,” said Menon.

Hyatt makes a splash, to add 950 guest rooms in 2012

This story first appeared on the web-version of DNA Money edition on Friday, January 13, 2012.

The NYSE-listed Hyatt Hotels Corporation will be adding approximately 950 guest rooms across six new hotels in the country in 2012. The global hospitality chain currently owns hotels under the Hyatt Regency, Grand Hyatt and Park Hyatt banner and the new launches will be under Park Hyatt, Hyatt and Hyatt Place brands.

The new hotels will be operated under Park Hyatt Hyderabad (209-room with 42 serviced apartments), Park Hyatt Chennai (204-room), Hyatt Raipur (104-room), Hyatt Place Hampi (116-room), Hyatt Place Pune, Hinjewadi (117-room) and Hyatt Place Bangalore, Whitefield (200-room). Once operational, Hyatt’s India portfolio of operational hotels will go up to 14 hotels — from 8 hotels — taking the total number of guest rooms to 3,639 rooms from 2,989 earlier.

In a related development, Hyatt will be introducing a new extended-stay brand in India christened Hyatt House and a management agreement has already been signed in North Mumbai to this effect.

Steve Haggerty, global head of real estate and development, Hyatt Hotels Corporation, said, “The introduction of Hyatt House in India, combined with our decision to make India the first location outside the US for our Hyatt Place brand, reflects our commitment to offering our extended-stay and select-service brands in one of the world’s fastest-growing markets.”

In addition to Hyatt House Mumbai, the hotel major has also signed new agreements for five additional Hyatt brands viz. two Andaz hotels in Jaipur and Delhi; one Hyatt hotel in Raipur; 14 Hyatt Place hotels in Chakan, Delhi, Gurgaon (2), Goa, Hampi, Hyderabad, Jamshedpur, Kochi, Mohali, Munnar, Nashik, Sriperumbudur, and Thiruvananthapuram; three Hyatt Regency hotels in Raipur, Hyderabad and Neemrana and two Park Hyatt hotels in Delhi and Jaipur. With this, the total number of announced Hyatt-branded hotels under development stands at 53. The hotel chain currently has eight operational properties with 2,689 guest rooms under Hyatt Regency, Grand Hyatt and Park Hyatt

brands. On the upcoming Hyatt House concept, company officials said it was unveiled in September 2011 and is rooted in extensive consumer research and offers casual hospitality in a smartly designed, high-tech and contemporary environment.

Located near Mumbai’s vital commercial and industrial districts and within close proximity of Chhatrapati Shivaji International Airport, the hotel will feature 170 guestrooms, a multi-cuisine restaurant and bar, and meeting rooms, as well as business and fitness centres and a swimming pool. “We are leveraging our more than 30-year experience in India to become the most preferred hospitality brand for a growing number of affluent, domestic travellers within the country. Guests will soon be able to enjoy our full portfolio of brands in many of India’s most popular business and leisure markets,” Haggerty added.

UPDATES from Hyatt Hotels Corporation On July 13, 2012.

Hyatt Hotels Corporation said that Hyatt affiliates signed management agreements for an Andaz hotel in Gurgaon and a Grand Hyatt hotel in Kochi, bringing the total number of announced Hyatt-branded hotels under development in India to 56.

"We are focused on creating preference by enhancing distribution of our full-service, extended-stay and select service brands in both new and established markets in India where our guests are increasingly traveling," said Ratnesh Verma, senior vice president - real estate and development, Asia Pacific for Hyatt Hotels & Resorts. "Creating a strong presence for our complete brand portfolio in India is critical to Hyatt's leadership in the global hospitality sector."

"The new agreements, along with the previously announced properties under development, demonstrate growing confidence among owners and developers in the strength of Hyatt-branded hotels in India," said President and Chief Executive Officer Mark Hoplamazian.

Slated to open in Q4 2014, Andaz Gurgaon will offer 275 guestrooms and 75 serviced apartments. Additionally, the hotel will feature a three meal multi-cuisine restaurant, a specialty restaurant, a bar and a gourmet store, a six-treatment room spa, a fitness center, and a swimming pool. The hotel will also offer more than 11,500 sq ft of meeting space, including five Andaz Studios and a ballroom. Located in Gurgaon, the industrial and financial center of the state of Haryana, Andaz Gurgaon will be situated on the junction of the National Highway 8 (NH-8) and Northern Peripheral Road (NPR), which provides access to many of the city's main business districts, including Cybercity and Udyog Vihar, and manufacturing districts, including Industrial Model Township (IMT).

Grand Hyatt Kochi, will be located on Bolgatty Island in Kochi, which is situated on the eastern coast of the Indian state of Kerala. It will feature 250 guestrooms and amenities including a three-meal multi-cuisine restaurant, two specialty restaurants, a bar and lobby lounge, a 10-treatment room spa, fitness center, swimming pool, and Grand Club lounge. The hotel will also offer more than 60,000 sq ft of meeting and event space, including a 26,000 sq ft ballroom. Expected to open in Q1 2017, Grand Hyatt Kochi will be in close proximity to many key areas of the city, including Ernakulam, the main commercial district; Fort Kochi, the main tourist center of the city; Willingdon Island, which houses Kochi Port, the Kochi Chamber of Commerce and Industries, the Naval Air Base; and the International Container Transhipment Terminal, one of the largest container terminals in India.

Hyatt plans to open three new hotels in India in the remainder of 2012 across its Park Hyatt and Hyatt Place brands, including:

-- Park Hyatt Chennai, a 204-room hotel set to open in late 2012, will be situated in the capital city of the state of Tamil Nadu. The property will offer an innovative food and beverage outlets, residential style meeting and event space, and recreational facilities, including a spa and fitness center.

-- Hyatt Place Hampi, a 115-room hotel planned to open by the end of the year, will be situated near the Bellary industrial district. Hampi, which features spectacular views of the Sandur ranges and is home to a group of monuments classified as a UNESCO World Heritage site, also serves as a popular leisure destination. The property will include a multi-cuisine restaurant, meeting rooms, and a fitness center, and swimming pool.

-- Hyatt Place Pune, Hinjewadi, a 117-room property set to open at the end of the year, will be located within the Rajiv Gandhi Infotech Park at Hinjewadi, a prominent software hub. The hotel will feature a multi-cuisine restaurant and meeting space, as well as a business center, fitness center, and swimming pool.

With 56 hotels under development in India, Hyatt currently plans to offer its full portfolio of brands, including:

-- 18 Hyatt Regency hotels under development, in addition to five already open

-- 5 Grand Hyatt hotels under development, in addition to two already open

-- 5 Park Hyatt hotels under development, in addition to two already open

-- 23 Hyatt Place hotels under development

-- 3 Andaz hotels under development

-- 1 Hyatt House hotel under development

-- 1 Hyatt hotel under development

As part of this expansion, Hyatt is seeking to attract and develop high-quality talent in India in order to drive future growth. Currently, more than 3,500 associates are employed at Hyatt hotels in India, and with the development effort, it is expected that more than 7,000 new associates will be welcomed into the Hyatt family. Hyatt is investing in training curriculums and accelerated leadership programs in order to ensure that new associates support the company's mission to deliver authentic hospitality and to develop new professional opportunities for its associates.

Yash Birla Group to invest Rs13,000 crore in Andhra Pradesh

Marking its foray into the development of sports and wellness related infrastructure development, the Yash Birla group has submitted a proposal to the Andhra Pradesh (AP) government for setting up an international-standard sports city in its Pearl city- Hyderabad.  Group chairman, Yash Birla proposed an investment plan of Rs13,000 crore in his meeting with the Andhra Pradesh chief minister N Kiran Kumar Reddy. This project would be the largest investment made in the state by any conglomerate making it a one-of-a-kind venture.

Yash Birla, chairman, The Yash Birla Group, ”Our investment is part of the group’s plan to develop the sports sector in Andhra Pradesh. This will not only be the single largest investment made by the Yash Birla Group but will also boost sunrise sectors- alternative energy, healthcare and education in the state. Our constant endeavour has been to innovate and deliver the best lifestyle experience to the society.”

The outlay includes investment of Rs 10,000 crore for a polysilicon-plant by power solutions. The company will be producing solar grade polysilicon, silicon wafers, solar photovoltaic cells, solar photovoltaic panels at the plant. The Group has sought 450 acres near the Rajiv Gandhi International Airport at Shamshabad and another 250 acres for a wellness centre. The capital will be generated through private equity dilution, internal accruals and proposed IPO.

A global integrated ayurvedic village by Birla Wellness and Healthcare division will be set up with an investment of Rs1,000 crore. This investment will house an integrated ayurvedic centre promoted by Birla Wellness and Healthcare division, which will provide ayurvedic products and services to offer comprehensive range of both preventive and curative treatments. The total project investment would be Rs 750 crore. The integrated ayurveda complex would generate employment opportunities for 4,500 people.

Birla Edutech is aiming for a sports city with an investment of Rs2000 crore. The sports city will have all kinds of sports infrastructure along with a manufacturing centre and a wellness centre. At the facility, local sporting talent will be developed to match international standards. The sports city aims to be a leading development project with a distinct focus on sport and sporting excellence that will attract local, regional and international participants. The complex will have facilities built to specifications for international sports bodies and will host academies for swimming, track and field, volleyball, tennis, golf, badminton courts among others. The project will include high rise towers, banks, business centres and shopping malls making it completely self- sufficient.

The Yash Birla Group is an Rs30 million conglomerate of over 20 diversified companies which run the gamut from established sectors like auto and engineering, textiles and chemicals, and power and electricals to emerging sectors of today like wellness and lifestyle, education and IT. The group currently has 10 listed entities in India.

30% local sourcing curbs retailer play

My colleague Promit Mukherjee is the lead writer of this story which appeared in DNA Money edition on Wednesday, January 11, 2012.

After playing to the tunes of allies and coalition partners for almost a month, the government took the bold step of notifying 100% foreign direct investment (FDI) in single-brand retail in India.

This means global brands such as Gucci, Tommy Hilfiger, Zara, Adidas, Nike and others can set up fully owned businesses — till now, they had to have an Indian partner who held 49% stake.

But what skews this milestone development, retailing experts say, is the 30% rule — where foreign companies have to source nearly a third of their products from Indian ‘small / village and cottage industries, artisans and craftsmen’ if they want to go purely solo.

“I really do not understand the logic behind the 30% local sourcing pre-condition for foreign single-brand retailers looking to set up operations in India. It is like saying we are open to investments but you cannot really invest. It clearly shows the government doesn’t really understand the concept of single brand retailing,” said a top official from a leading retail consulting firm in India, who did not wish to be named.

The caveat defines small industries as those with a total investment in plant and machinery of around Rs5 crore. This valuation refers to the value at the time of installation, without providing for depreciation.

Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a ‘small industry’ for this purpose. The compliance of this condition will be ensured through self-certification by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts, which the company will be required to maintain.

“This basically also means that the government doesn’t really want the small industries to grow their business and remain where they are forever,” added the official.

Arvind Singhal, chairman of Technopak Advisors, feels while the pre-condition may work for a handful of categories, it’s a hurdle for a whole lot of others where local sourcing is not really possible at least in the first few years of setting up front-end operations in the country.

“What the government could have done instead is make it mandatory for such retailers to export 30% - 40% of the value of their overall sales generated from the Indian market. This approach would work faster compared with what has been put together at present,” he said.

Anil Talreja, partner, Deloitte India, said companies which already source locally can be in a sweet spot but concurs others may have to relook at their expansion strategies.

“This may also lead to staggered buyouts or giving away the sourcing part to its Indian partner,” said Talreja.

Govind Shrikhande, managing director, Shoppers Stop, said retailers operating in categories such as bed linen which are already sourcing from India will be the key beneficiaries.

“However, luxury goods retailers will not be able to source from India because they have to maintain global standards for their brands and hence manufacture it from a single location. Such players will continue to operate the way they have been doing thus far,” he said.

Terming the government’s decision a move in the right direction, Kishore Biyani, founder and group CEO, Future Group, said, “Going forward, increased level of activity can be witnessed in categories such as home and apparels.”

Kumar Rajagopalan, CEO of Retailers Association of India (RAI), says larger fashion houses (without India sourcing) will have to start looking at ways to comply with the 30% condition if they want to set up beachheads.

The government first allowed 51% FDI in single-brand retail in 2006. In four years since, India drew close to $200 million in FDI.

Government figures show there are as many as 94 proposals for FDI with the government of which 57 have been approved so far.
“This is expected to rise exponentially now,” said Harish Bijoor, independent retail consultant. The 30% sourcing rule, according to him, will only expand the time between ideation and incubation of businesses.

According to Sageraj Bariya, managing partner, Equitorials, a Mumbai-based equity research firm, another plus point would be that foreign brands that are already in India will be able to take quicker business decisions and therefore make more investments since they will not have to wait for their partner’s ability to raise funds.