Cable Digitisaton: Chaos is fine, extension of deadline is not

The Cable and Satellite (C&S) fraternity has been working aggressively to meet the government's June 30, 2012 deadline for Phase-1 cable digitisation and compulsory use of set-top boxes (STBs) in the four metros, which is just a three weeks away.

Despite a short timeline for digitisation, the fraternity stressed that it should be met with without fail. While majority of the players foresee a chaos situation in the market place, the consensus is that chaos is still better as cable subscribers will then make time for digitisation.

Recollecting a similar situation that broke out earlier over the 'know your customer' (KYC) deadline for mobile connections, Nagpal said, "The mobile subscribers took it seriously only after their connections were taken off the network. We saw long queues in the following days and weeks for getting the KYC procedure done.

"It is very likely to happen in case of digital cable as well. Customers who do not act before the July 1 deadline should be willing to wait for 5-10 days or more without TV, whatever it takes us to get it to them. That's because if you give them an additional 6 months, you will fall back into a limbo."

Ravi Mansukhani, MD, Incable, Indusind Media & Communications Ltd while pointing to other issues viz. terms of business, selling price of boxes to consumers, price for retailing the channels, overall business plan etc, stressed on the fact that the deadline should be met.

"Who is the biggest loser, if digital addressable system (DAS) does not happen? Who is spending all the money in this entire exercise? We have all ordered 2 million boxes, spent the maximum amount of money. We are sitting on inventory.

"We want to implement DAS effectively and successfully. Now whether the government wants to phase it further or stick to the phase, let them come up with the solution. But that is the bottom line," asserted Mansukhani.

Digitisation will help plug tax losses

The story first appeared in DNA Money edition on Tuesday, June 5, 2012.

Digitisation in the Indian cable and satellite (C&S) sector is set to significantly plug tax losses caused by under-declaration of subscriber numbers by some last-mile cable operators, say industry experts.

According to data presented by Jawahar Goel, former president of Indian Broadcasting Federation (IBF), to the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) in 2008, a meagre 6.8% service tax was being declared by cable operators across cities such as Delhi, Kolkata, Bangalore, Chennai, Hyderabad, Jaipur, Ludhiana and Gurgaon.

The data also showed that Delhi, Kolkata, Bangalore, Chennai and Hyderabad were among the cities that reported highest leakage.

Goel said he is in the process of collecting similar data for the last four years, which will throw light on latest scenario.

Low tax compliance, according to industry sources, is because a certain section of cable operators uses various means to influence the tax implementation authorities and gets away with it.

“The not so influential cable operators, however, bear the brunt as they are being made a scapegoat by the tax authorities to meet their targeted revenues. The authorities also go to the extent of arresting such honest cable operators because they refuse to pay up,” said the source requesting anonymity.

The C&S players also feel that the government’s taxation policies need to be rationalised. The fraternity says that a lot was promised like fiscal incentives, some compensation in terms of taxations, etc, but nothing has really happened.

Harit Nagpal, MD & CEO, Tata Sky and president of DTH Association, said, “We are okay with tax. But over-taxation or multiple-taxation is certainly a problem. The state takes the entertainment tax. The Centre charges the service tax. There is duty on imported set-top boxes. And this is in addition to the licence fee.”

“The DTH and cable operators have become the collector of tax from its subscriber base,” said Dish TV’s Goel, adding, “while there’s multiple taxation for DTH and cable operators, the multiplex industry with a similar business doesn’t pay any service tax.”

Besides multiple taxation, the industry feels charging entertainment and service taxes onfree-to-air (FTA) channels is not appropriate.

Anil Kumar Malhotra, COO - sales & operations, Wire & Wireless India Ltd, said, “In Maharashtra, entertainment tax on cable connection is Rs45 (per subscriber). Add service tax to that and the subscriber is paying approximately Rs160 i.e. around 60% over and above by way of taxation for FTA channels...something that is of essential value to the consumer.”

Echoing the sentiment, Anil Khera, CEO, Videocon Digital DTH Service, said, “There will be a lot of confusion on how much you really collect from a customer.”

Cable industry fears chaos as digital deadline nears

This story originally appeared in DNA Money edition on Thursday, May 17, 2012.

The government-set June 30, 2012 deadline for Phase-1 cable digitisation and compulsory use of set-top boxes (STBs) in the four metros might get extended. Independent cable operators have approached the ministry of information and broadcasting (I&B) to sort out contentious issues before making the switch from analogue to digital.

The government notification on the deadline for digital addressable system (DAS) was issued on on November 11, 2011. But, Roop Sharma, president of the Cable Operators Federation of India (Cofi), said that government delay in decision-making meant that the final guidelines came only on April 30, 2012.

This left the cable fraternity with a very short execution window, said Sharma. “As per rules, the cable fraternity should get at least six months to prepare themselves to meet the deadline. But this won’t be possible now. It is a very genuine problem faced by cable operators. Hence, an extension is inevitable.”

Jagjit Singh Kohli, MD and CEO of Digicable Network, agreed. “I think an extension will be necessary. If not six months, the industry should at least get another three months to implement Phase-1 digitisation.”

On May 10, the Mumbai High Court, acting on a petition fined by 15 cable operators, directed the national government to defer the deadline.

Anil Malhotra, COO of Wire and Wireless India Ltd (WWIL), a multi-system operator or MSO, said, “While MSOs are more than eager to implement digitisation, the final decision still rests with the subscribers. The deadline is nearing by the day. A last-minute decision to opt for a digital cable connection will very likely lead to a blackout kind of a scenario sooner or later,” said Malhotra.

Harit Nagpal, MD and CEO of Tata Sky, feared chaos of the kind that broke out earlier over the know your customer (KYC) deadline for mobile connections. “The subscribers took it seriously only after their connections were taken off the network and we saw long queues in the following days and weeks for getting the KYC procedure done. It is very likely to happen in case of digital cable as well.”

As suspense over deadline extension intensifies, large MSOs are busy putting together a business model for the digital cable era with focus on commercial arrangements with broadcasters.

In fact, operators and broadcasters held an informal meeting May 14 to discuss the matter, said a highly placed source. “Any concrete direction on the future course of action will be arrived at only after the commercial arrangements are agreed upon. Till then, it’s a wait-and-watch situation,” said the source.

Industry sources said that coming weeks will see a series of meetings involving local cable operators (LCOs), MSOs, direct-to-home (DTH) operators, broadcasters and investors. Several issues will be discussed threadbare.

Cofi’s Sharma alleged that the Telecom Regulatory Authority of India (Trai), the industry regulator, had ignored cable operators’ views while framing the guidelines, particularly those relating to the revenue sharing ratios between LCOs and MSOs which will affect LCOs’ livelihood.

Quality and interoperability of STBs to be provided by MSOs is another issue causing concern to LCOs, said Sharma. Digitisation, including taxes and other levies, will make home television entertainment more expensive, particularly for households with multiple televisions, said Sharma.

Trai data show 94 million cable customers in India in 2011, out of 147 million TV households.Some 44.4 million homes have DTH TV. With MSO digital penetration currently at 5 million, some 90 million STBs will have to be deployed country-wide, to meet the 2014 deadline for pan-India digitisation.

With Decision, Piramal widens pharma play

My colleague Priyanka Golikeri co-authored this story appearing in DNA Money edition on Thursday, May 17, 2012.

By acquiring Decision Resources Group (DRG), a US-based healthcare information provider, for Rs3,400 crore ($635 million), Piramal Healthcare is venturing into a field where no major Indian pharma player has tread so far.

Analysts said the move to acquire a firm that provides research, consulting and analytics services, instead of a pure-play pharma player, is a big step forward into the larger healthcare spectrum.

Piramal stands to benefit from the increasing demand for drug market information as research costs are rising and approval rates for new medicines are low.

Ajay Piramal, chairman, Piramal Healthcare, said, “The need for specialist information is critical and the demand is growing. DRG’s portfolio of products is widely regarded as the gold standard of information. We will leverage our longstanding reputation and relationships with global pharma companies, our knowledge of emerging markets as well as our track record of successful acquisitions as we continue to grow further DRG’s leadership position in the healthcare information and analytics industry.”

“DRG boasts of a strong team of 290 analysts and network of 125,000 healthcare professionals. What is really impressive is the fact that 48 of the top 50 global pharmaceutical companies form part of its clientele and these aspects are worth more than value that any drugmaker could have fetched Piramal,” said an analyst from a leading brokerage.

Piramal, which sold its domestic formulations business to Abbott Labs for $3.8 billion and diagnostics business to SRL for Rs600 crore, has been scouting for investment opportunities to deploy its cash pile. DRG, one of the fastest growing firms in the $5.7 billion healthcare information firms at a 20% CAGR, provides high quality, web-enabled research, predictive analytics via proprietary databases and consulting services to the global healthcare industry.

The company’s projected revenues for the year 2012 is $160 million.

A market leader, DRG is positioned with Reed Elsevier, Gartner, Forrester Research, and acquiring such a company puts Piramal also in the same league, analysts said.

“Given DRG’s client base, the acquisition certainly works to Piramal’s advantage as they can now have an entire database at their disposal,” said Ranjit Kapadia, senior vice-president, Centrum Broking.

DRG’s business is spread across biopharma and medical technology, which automatically increases Piramal’s bandwidth, say experts. “There is an element of differentiation which acquisition of a firm like DRG brings,” said Adithya Bhat, managing director, Protiviti Consulting, adding that it is a broader channel in the healthcare industry and a smart move by Indian firm.

The acquisition, Piramal said, will be completed this quarter and funded through a mix of debt and equity in ratio of 1:1. The debt would be raised against DRG’s assets in Burlington, Massachusetts.

Piramal’s has acquired a 100% stake from private equity firm Providence Equity Partners, which had bought the company in 2007. “PE firms generally have a specific horizon for their investments in different companies and Providence was looking for an exit. I really cannot share details about the multiples being paid to acquire the controlling stake,” Piramal said when asked about DRG’s profitability and other valuation-related details.

Westinghouse aims to garner 5-10% of consumer durables

R Venkat, CEO & Director, WAIP

This Q&A first appeared in DNA Money edition on Wednesday, May 16, 2012.

US-based consumer durable firm Westinghouse Electric Corporation forayed into the Indian home appliances market sometime in November 2011. The management has set itself an ambitious target of Rs200 crore in sales by 2014-15. R Venkat, CEO & Director, Westinghouse Appliances India Pvt, speaks about the company’s road map for the Indian market. Edited excerpts:

Could you briefly tell us about the company and its offerings?
The brand, Westinghouse, was established in the US some time in 1886 and has gone through various stages of ownership changes. A part of Westinghouse Electric Co, it underwent major restructuring exercises in 2010-11 wherein CBS is now the licensee for brand Westinghouse. The operations in India come under the Dubai-headquartered Mapana Middle East FZ Co and there is another company W- Lifestyle which is a global licensee for the brand operating out of Hong Kong.

We launched operations in India in November 2011 and are currently selling our products primarily in the northern region i.e. Delhi, Haryana, Punjab and Jammu & Kashmir. Targeting the fast-growing Indian retail home appliance market, our range comprises small domestic appliances, personal care, garment care, heaters, baby care and premium fans, to start with.

Despite being a heritage brand, you’ve taken really long to enter the Indian market.
The Westinghouse restructuring exercise only got over early last year and the management took some time to identify the right product mix to make the right impact here in India. The Indian market is the second-largest in the world which is growing by leaps and bounds and we felt the time was right as purchasing power, buying behaviour and lifestyles were all changing.

But you already have competition from Korean and Japanese brands that have captured a significant slice of the market?
We are a young company and certainly can learn quickly from our competitor’s mistakes and that’s how we intend to operate in the Indian market. We are carefully studying the market demographics and putting together a multi-pronged strategy. We will focus on innovating and offer products that will give customers a better choice than what is already available.

Are your products available across the country? Which existing brands would you be competing with directly?
Not as yet. We are doing a phase-wise expansion, starting with North India followed by South, West and East. The focus will largely be in tier I and II cities. We are currently selling through 200 stores in Delhi, NCR and J&K. By August this year, we will be present in all the 42 cities that are potential markets for our product range across the country. Competition will be from brands like Panasonic, Philips and Indian companies like Havells, Usha Lexus and Bajaj Appliances.

Which are the other product categories you are planning to add to your offerings?
High-end and decorative ceiling fans are a category we have very recently introduced in the market. These are dual-technology, summer-winter fans that can run clock-wise and anti-clockwise and come with light attachments. We currently have 8 models, but will bring in the entire range of 36 models gradually. These fans are priced anywhere between Rs7,000 to Rs30,000 and are a niche product. Then, we have the lights category with a range of CFL and LED lights followed by air-conditioners. While lighting products will happen in the next six months, a decision on air-conditioning products will be taken how the market situation this year will be.

But the industry seems to be fairly bullish on the AC product category, especially when temperatures are soaring across the country.
Well, last year wasn’t very good for the AC market which witnessed a negative growth of 20%. My understanding is that every major brand in the AC category is having a tough time and an increase in raw material costs by 20-25% has only added to the trouble.

What are your revenue targets for India? How would you increase brand visibility?
Once presence is established in all the 42 cities across the country for our over 100-odd stock keeping units (SKUs), we will start working on the visibility side. The plan is to invest to the tune of Rs70 crore on marketing and product development in the next three years. We want to acquire a significant share of the estimated Rs6,000-crore home appliances market and are targeting Rs200 crore topline by 2014-15. The idea is to get at least 5-10% market share of the organised brand segment in India.

Where are you sourcing all products from?
Most companies follow the original equipment manufacturer (OEM) approach which is what we are doing to ensure a leaner organisation. We are working with third-party manufacturers in China and some from Indonesia. Lights will come from the Middle East. Some of the products like heaters and irons that require Bureau of Indian Standards compliance will have to be manufactured locally. So, wherever we feel there is a cost benefit in terms of sourcing, we will get the products made from there.

What is your distribution strategy in India?
We will be using a combination of traditional and contemporary approaches. Carrying and forwarding (C&F) agents will be out primary strategy followed by online with the likes of fipkart.com and selling through modern retail chains. Some of our products are also targeted at the institutional market so we will use that distribution channel as well.

Panasonic Corp set to acquire 72% in Firepro Systems

Global electronic products leader Panasonic Corporation is bailing out the Indian fire solutions company Firepro Systems from a financial crisis situation. The Japanese company will acquire 76.2% of Firepro’s shares for an undisclosed sum. The acquisition of majority stake will be done through a combination of primary and secondary transactions and the deal is likely to be concluded by late May, 2012.

Panasonic management said in an official statement that it has entered into an agreement (with Firepro) of subscriptions of allocation of new shares to a third party with its consolidated subsidiary, Anchor Electricals. “Panasonic will acquire a portion of Firepro's ordinary shares previously owned by investment companies... Following the acquisition, Firepro's management will continue to own 10.8%, and investment companies 13.0% of the company's shares. Through a third party allocation of shares, Anchor will increase its capital,” company management said in an official note.

When contacted, Panasonic Corp’s media agency said the company management will not be sharing any additional information apart from what was mentioned in the official note.

However, going by the overall health of the company (Firepro), it appears to be a distress sale and that Panasonic would have picked up the majority stake at a very significant discount to the valuations given by its existing private equity (PE) investors.

Among existing private equity investments in Firepro include AIG’s Rs 50 crore and StanChart PE’s Rs 150 crore placements in 2006 and 2009 respectively. As per reports, AIG and StanChart PE have picked up approximately 15% and 26% stake in Firepro respectively.

While AIG could not be reached, Nainesh Jaisingh, India Head of Standard Chartered Private Equity Ltd (SCPEL) did not revert to calls and text on his cell.

Earlier reports had also indicated that UTC Fire & Security, a $6.5 billion arm of United Technologies (a $54 billion diversified aerospace and building systems provider), was looking to buy FirePro for $200 million. The deal however, did not go through as the prospective buyer was not very comfortable with Firepro’s prevalent financial health.

Firepro Systems, with a topline of Rs 700 crore, is a privately held Indian company offering security and building management systems and, integrated solutions for fire protection. In 2011, the company’s business suffered a major setback owing to the economic slowdown which significantly impacted infrastructure and real estate sectors in the country. An ICRA report in September 2011 said that the Firepro was struggling with its debt position, facing stretched liquidity and delays in servicing interest obligations.

Panasonic Corporation however, sees the acquisition as a way forward in building the foundation by expanding comprehensive solutions business in India. “The move is a very major part of the company strategy in order to set the stage for  strengthening Anchor's non-housing business and making it the number one general electric facilities materials manufacturer in India; also accelerating the introduction of Panasonic products into India, and expanding its comprehensive solutions business in India non-housing fields,” said Panasonic in the official note.

Starwood sees hotel space consolidation

Simon Turner

An edited version of this interview first appeared in DNA Money edition on Thursday, May 09, 2012.

Global hospitality company Starwood Hotels & Resorts Worldwide Inc currently has more than 7,500 rooms India and quality development pipeline of 5,000 rooms. Simon Turner, president - global development, Starwood Hotels & Resorts Worldwide Inc stressed that while the world as a whole and India within it is experiencing volatility, the hotel company’s strategy is to have a quality hotel development pipeline and not a pipedream. Edited excerpts...

What’s your take on the Indian hospitality market given that things are not really looking very good for the sector?
It is interesting to look at each year and how things have changed. From the overall Starwood perspective, we have been in India since 1973. So we have been in India for a long time and we will be in India for a long time. I think that our perspective on India is that we will stay focused on increasing our footprint. While the world as a whole and India within it will experience volatility, our goal is not to make outrageous growth claims.

Our approach is to have a quality hotel development pipeline and not a pipe-dream. India certainly is a fabulous place to be and is enormously exciting from a macro economic and demographic growth perspective. It is a challenging place to do business and you need to be able to function as a local in this market which is why we have such a strong local team which has been focusing purely on the Indian market.

There will be political and economic challenges in India, most of which will work out on its own. The country’s economic engine is unstoppable, the demographics, social change and the growth of the middle-class will continue.

You think consolidation is seeping into the Indian hospitality market especially with respect to project developments?
When we build hotels, these properties will be operational for the next over a couple of decades or more. I think that while one has to be concerned about the near term economic volatility of the world and in India, what also needs to be understood here is that our owners are investing in hotels for a long-term.

But there is a lot of concern with the developer community. Considering Starwood has a very significant pipeline, is the stress showing on your developments too?
Our development mantra is right properties, right places and right partners. When we look at deals in India the focus is on having the right partner. Associating with quality owners like the The Brigade Group, Oberoi Realty etc. play a crucial role in riding the market volatility cycles. I think what you’ll see happen is as a market gets more and more volatile, some of the most speculative or less experienced developers / owners will reconsider their plans and there may be some consolidation. While I’m confident our development partners will come through it fine they may be also be better positioned to take advantage of the market situation and obtain projects that are in the market.

We have been doing deals in India since 2005, signed 45-50 deals and had to terminate only one agreement because it didn’t happen and in our pipeline today there’s a couple of projects on hold so, out of all may be less than 5 hotels are either kind of on hold or didn’t happen. It is a very low attrition rate if you look at other companies. If you look at the quality of pipeline even today what people have signed, I think a lot of those deals don’t happen, for our competitors, where as ours, we’re are pretty selective and you know sometimes people think we are too selective but I think we really focus on picking the right partner. Hotel development is not 20-20 game but a 5-day test match.

So can we say that the 100 hotels target announced earlier in the year is pretty much on track?
Hundred is our goal in terms of opened or under construction hotels wherein 33 are already operational and another 22 are under construction. We will get to the India-100 aspiration and it is not a matter of if, it’s a when. What we’re doing is we’re spreading up our organisation and investing in the Starwood infrastructure in the form of having a call center in India that is primarily focusing only on our Indian hotels and largely the domestic traffic which is an enormously important part of that business.

Our Indian team would be be the largest in-country team when compared to teams of all the global hotel companies operating in India. What we want to be able to do for our owners is to provide them with the necessary level of support in advance of the hotel’s opening and it fundamentally means having people who know the Starwood systems, the hotels, know the owners, know all the customers in the market and it’s an overused phrase but I think one of the thing we pride ourselves on is we truly are a global company functioning locally.

Starwood is the only hotel company that is yet to take equity positions in India. What are the possibilities of it happening in the near future?
I don’t know the details of equity announcements made by other hotel groups. I think we as an industry sometimes tend to get over excited about making big announcements that eventually get splashed across the media. But if you go back a few years, there were a couple of very large announcements between global brands and local Indian investors saying we’ll do over 50 hotels and then a few years on the fizz just sort of goes away.

Running global brands, creating multilingual web pages, setting up a customer call centre, investing in infrastructure for over 100 people in the country and having a loyalty program that makes sure the Starwood Preferred Guest (SPG) clientele is loyal beyond reason is also an investment of a different kind. What we’ve focused on is doing a limited number of things really well. Having great distinctive 9 brands and making them as appealing as we possibly can to guests to costumers to owners is what we’re focusing on. Investing in technology to put heads in beds is enormous.

We think the property investment that our owners make is so specialised and requires such local knowledge that we don’t think that’s where we should be. Now, we also haven’t found it necessary to invest capital in the real estate in order to support our growth, because the property owners want to be able to harness what Starwood does best. I think we have the financial flexibility to be open to investing but it’s not something that’s a requirement for us to achieve our growth goals.

One of the things that we have found is the owners that we work with are well capitalised and one of the great things about capitalism is that if there’s and opportunity if all these rooms are a good investment, money will find its way to those rooms.

With new development control rules (DCR) in Mumbai, will it lead to changes for the upcoming W hotel in Mumbai?
There was a review which is now complete. We did not lose much because it was pretty much built around the parameter that they have. So the size of the hotel still remains the same. Certain areas, public areas might be cut back, but nothing major.

Are you considering a budget hotel brand given the excitement around that category of hotels in India?
We are not looking at that segment. Focusing on the existing 9 brands and doing whatever we can to make them as value added as possible to the owners is priority. We haven’t wandered into the budget space and if we ever decide to go in that direction, we will do it all for a great deal of thought and consideration and deliberation but at the moment, that’s not where we are.

How is your association with ITC progressing?
We have a long standing relationship with ITC. We have huge respect for them as an organisation and I think the way we look at our relationship with them, it’s a 1 plus 1 equals 3. I think we bring things to the table, they bring things to the table, and we’ve got such a long standing deep relationship between the 2 organizations that it’s an unusual relationship but it works. And I think one of those things we pride ourselves of as a company is being both pragmatic and flexible and I think again we hold them with such high regard that we figured out a way to make it work with both parties.

You had an association with Lavasa which was later terminated. Any plans to re-enter that location?
We didn’t have anything signed there. We were in discussions with Lavasa for Sheraton but that didn’t materialise. But yes, they have got good clients for leisure as well as education and for the right opportunity, why not.  At the moment, I think the upscale brands have gone in. There is a Fortune and a Novotel and I think there is a golf course opening up too besides other plans that are part of the master development. I think there will be a lot more interest from a lot more hotel companies.

Moser Solar's CDR plan gets bankers' nod

My colleague Neelasri Barman co-authored this story which appeared in DNA Money edition on Tuesday, May 8, 2012.

Moser Baer Solar (MBS), pioneer of solar power in India and a subsidiary of Moser Baer India, has received bankers’ in-principle approval for its proposed Rs 739 crore corporate debt restructuring (CDR).

In April 2012, MBS had approached the CDR Cell for the purpose.

MBS’s bankers — Punjab National Bank (PNB), State Bank of India (SBI), Bank of Baroda (BoB), IDBI Bank and Indian Overseas Bank (IOB) and a few other banks — met in Mumbai on Monday.

A public sector bank official who attended the meeting confirmed the approval.

Although it is a no-brainer that MBS is facing some sort of financial problems and hence unable to repay its existing debts, it is not clear why exactly the company needs CDR.

MBS officials declined comment. “We are in a silent period,” said an MBI spokesperson.

The banker, however, said CDR will encompass a Rs 500-crore term loan, working capital loans of Rs 230 crore and the remaining Rs 9 crore of dollar loans.

PNB’s exposure to MBS is to the tune of Rs200 crore, SBI’s Rs150 crore, IOB’s Rs130 crore and BoB’s Rs60 crore.

A few other banks account for the rest (Rs199 crore).

The approval will be followed by a new plan for repayment of MBS’s loans. The company will be relieved from interest payment. Repayment tenure will be also extended.

MBS last made news in January this year when it commissioned a 5mw solar power project in Rajasthan with a capacity of 92 lakh units of electricity per annum and saving carbon emissions equivalent to 8,400 tonnes annually.

The project, developed jointly with the ministry of new and renewable energy and spread over 60 acres of rocky terrain, is expected to power up over 70,000 households in Jodhpur.

The CDR Cell was formed in 2001 as both the Reserve Bank of India and the government felt the need for such an exclusive body to resolve cases of corporate financial sickness.

The cell maintains records of all CDR cases reported by banks and financial institutions.

CDR reduces debt burden on the company concerned by lowering interest rates and extending loan tenures.

Gaar delay gives PE firms time to comply

This story first appeared in DNA Money edition on Tuesday, May 8, 2012.

The government’s decision to defer General Anti-Avoidance Rules (Gaar) by a year will give private equity (PE) and venture capital (VC) firms enough time to adapt to its provisions.

Industry players said the major concern for PE / VC fraternity (from the Gaar provisions) was from the commercial substance in the jurisdiction in which they were resident.

“Now they will have the time to establish that substance,” said Mahendra Swarup, president, India Venture Capital Association - an apex body of PE and VC firms in India.

The taxation part in Gaar, Swarup said, was also healthy as the regulator now says if any investment firm does get caught up in the Gaar non-compliance then the maximum tax that needs to be paid is 10% and not 20%.

“It is only from next year that the investors will have to pay 30% if they are non-compliant with Gaar. The zero-tax arrangement continues for all investments that are Gaar-compliant.”

“There is time available for investment firms to become GAAR compliant. There will be no impact on the funds’ inflow from the PE / VC community going forward.”

Stating that the PE / VC community was never against implementation of Gaar, Swarup said the way it was being implemented was disturbing as it took everyone by surprise.

“The government has assured that it will not be retrospective as long as the assessment is over which basically means no reopening of assessments,” he said.

Digital tariffs a dream, coo cable television networks

This story first appeared in DNA Money edition on Thursday, May 3, 2012.

Cable and satellite (C&S) operators — and, yes, broadcasters, too — have lauded Monday’s tariff order and regulations of the Telecom Regulatory Authority of India (Trai) on digitisation of cable TV networks in the four metros.

The shift from analogue to digital mode, to be effective from July, is expected to bring some 500 TV channels each to 100 million homes in the metros by April 2013. Cable TV networks are now free to recover digitisation costs from broadcasters rather than consumers through ‘carriage fees’. Typically, carriage fees borne by broadcasters are estimated to be around Rs 4,000 crore annually.

Terming the new tariff regime progressive and a feather-light approach to regulation, industry players said it will increase transparency and pave the way for more investments in the sector. Broad consensus is that the new guidelines appear acceptable and would quicken digitisation of cable networks.

R C Venkateish, CEO of Dish TV, said, “It’s a win-win situation. The regulator has done an admirable job in balancing the interests of all the stakeholders.”

Broadcast industry sources said the Trai guidelines are consumer-friendly and will help everyone in the long run. “Cable operators and broadcasters should firm up commercial arrangements now and work aggressively towards achieving complete digitisation,” said a top official of a leading broadcaster.
 

C&S experts said digitisation would lead to a gradual increase in hitherto under-priced cable TV. Bijal Shah and Jaykumar Doshi, analysts at IIFL Institutional Equities, noted in a report that higher average revenue per user in the medium term should benefit both broadcasters and cable operators.

“This would also help direct-to-home (DTH) players raise package prices as the current low cable tariff is acting as a price cap. We expect broadcasters to be the early beneficiaries of digitisation followed by DTH and cable operators. We retain ‘buy’ on Zee and Dish TV,” wrote the IIFL duo.

According to ICICI Securities analysts Vikash Mantri, Satish Kothari and Akhil Kalluri, the Trai-stipulated 35% revenue sharing ratio for the local cable operator (LCO) is marginally higher than their expectation of 30%. “Besides, the ‘must carry’ provision (which could impact carriage fee) is marginally negative for multi-system operators (MSOs). However, the liberty to package bouquets and price channels will ensure an upper hand for MSOs in ensuring lower content costs.

“Also, while carriage fee has been legitimised, its application in a transparent, non-discriminatory and uniform manner, and creation of capacity of 500 channels, will ensure meaningful reduction in the same. We see the regulatory changes as a move to shift bargaining power in favour of broadcaster networks and large MSOs as market forces are allowed to hold their sway in most cases,” wrote the ICICI Securities researchers.

The new tariff regime empowers subscribers to choose channels on an a la carte basis, besides aiming to consolidate and regulate pricing of DTH and digital operators.

Independent, non-network channels are likely to benefit. New content would be broadcast based on demand. That is to say, bouquet or bunched-up offerings will be discouraged.

“However, we believe distributors will continue to sell bouquets innovatively to protect their own interests,” said Rahul Kundnani, research analyst (institutional equities, media & retail) at SBI Cap Securities.