Kempinski Hotels to re-enter India with Ambience

Kempinski Ambience Hotel Delhi

This story first appeared in DNA Money edition on Tuesday, September 04, 2012.

Third time lucky! Kempinski Hotels appears to be betting as it prepares to re-enter the Indian hospitality market.

This time around, however, Europe’s oldest luxury hotel group has taken the management contract route as opposed to the marketing alliance approach it had taken twice earlier with Capt C P Krishnan Nair’s The Leela Group.

After parting ways with Leela in February this year, Kempinski has joined hands with Delhi-based Ambience Group.

A real estate development company focused on premium developments primarily in the National Capital Region, Ambience will own the hotel asset while Kempinski will manage its day-to-day operations.

Branded Kempinski Ambience Hotel Delhi, the property in east Delhi, with 480 guestrooms and suites and the largest banqueting facility (it can take 6,000 guests), will be launched sometime between October and December this year.

A Kempinski spokesperson confirmed the development saying Vella Ramasawmy, president, Ambience Group and a seasoned hotelier, has been appointed general manager. He will be in charge of the pre-opening team and will be responsible for smooth operations of the luxury hotel.

The spokesperson, however, did not provide details on Kempinski’s commercial arrangements with the Indian partner or confirm if it was a multi-property arrangement.

The management agreement between the two sides was inked around December last year, industry sources said, hinting, it could well have been the reason for the Leela-Kempinski split.

The spokesperson did not comment on the reasons for discontinuing the marketing alliance with Leela, which was inked in 2005-06.  The Leela management had earlier said it was done to pursue future growth opportunities for which it was required to set up its own marketing and distribution system.

The Delhi hotel will be Ambience’s second such project in the country. Interestingly, the realtor’s first project, with 322 guestrooms and 90 serviced apartments, was the launchpad for the The Leela Group’s entry into north India, which is being managed under the banner The Leela Kempinski, Gurgaon.

PE firms betting big on Indian fragrance segment

This story first appeared in DNA Money edition on Tuesday, September 4, 2012.

Private equity firm The Blackstone Group recently picked up a 33% stake in Mumbai-based fragrance, flavours and aroma chemicals maker, SH Kelkar & Co (SHK), for Rs243 crore. The deal, second in the domestic fragrance segment in recent times, mirrors the growing interest of investors in India’s overall consumer story, not just retail front-end. Privi Organics, another Mumbai-based flavours and aroma chemicals maker, had raised Rs85 crore from Standard Chartered PE in March 2011.

Kedar Vaze, director and chief operating officer, SHK, said that in this second fundraise by SHK in two years, Blackstone has bought out the existing PE investor and also infused fresh funds. “Roughly 50% of the money raised has been used to give an exit (to the earlier investor) and the balance will be used to consolidate our position in the domestic and international markets,” said Vaze.

SHK enjoys 18-20% of the domestic fragrances, flavours and aroma chemicals manufacturing industry in India that is pegged at around Rs2,000 crore.

While organised players control 85% of the market, the top six enjoy 70% share and are growing in double-digits on account of rising demand from FMCG, processed foods, personal care and toiletries segments.

On market opportunity, Harminder Sahni, founder and managing director, Wazir Advisors, said, “In India, the processed food industry is gradually evolving, so the market is fairly small compared to the developed nations. While categories like personal care and toiletries (soap, shampoo, creams, lotion, etc) enjoy much larger market here, MNCs are the dominant players.”

However, these MNCs use very standardised flavours which they source from their global partners. The quantity is also not more since as only one gram of additive is needed for every 100 litre.

So why are PE funds betting on Indian fragrance makers? “Domestic brands, be it in the personal care space like ITC, KevinCare, Dabur, Marico and Godrej, or in processed food industry space which have become very valuable in the last few years, prefer to source from local players,” Sahni said.

PE funds are looking at the entire consumer story, not just front-end (retail chains and brands), but also the supply chain — distributors, suppliers, and their suppliers. So players such as SHK with sizeable market share in their segments provide good investment opportunity.

Experts see business of perfume makers rising and MNCs, too, eventually sourcing from them to cut costs, he said. “We are working with strong brand companies with over 2,000 products. In terms of volume and value growth, products like deodorants, fine fragrances and cosmetics are fast growing,” said Vaze, citing that deodorants as a category is growing at 40% per annum, while toilet soap has seen growth of 4-5% annually.

In the next 3-5 years, SHK will use most of the Blackstone funds to make acquisitions and is looking to expand to new markets. The company is targeting Rs700-750 crore revenues this fiscal with operating profit margins of 17-20%.

Blackstone invests Rs 243 crore in S H Kelkar & Company

One of the world’s leading investment and advisory firms, The Blackstone Group has picked up undisclosed stake in a Mumbai-based fragrances, flavors and aroma chemicals maker S H Kelkar & Company (SHK) by investing Rs 243 crore. The investment, according to SHK, will be used to consolidate its position in India as well as expand its presence in the global markets. The transaction was advised by Keynote Corporate Services Ltd.

A Reuters report citing sources with direct knowledge of the matter, said that the US private equity (PE) giant has bought a 34.5% stake in SHK.

Commenting on the deal, Kedar Vaze, director, SHK, said, Blackstone's strategic inputs and capital will enable the company to achieve ambitious growth plans. "In addition to helping us scale operations, this deal will provide us access to Blackstone’s international network and global best practices," said Vaze.

A research and development (R&D) focused company, SHK's clients include leading fast moving consumer goods (FMCG) companies in India and abroad. The company supplies a wide variety of specialty fragrance and flavour ingredients to 2,000 customer base globally.

With three manufacturing units in India (two fragrance units in Maharashtra, and one bulk aroma chemicals unit in Vapi, Gujarat) and a manufacturing unit in Netherlands, SHK recently opened offices in Singapore, Indonesia and Thailand, for growing sales to South East Asia in addition to sales offices across India. SHK's four R&D/creative centres are located in Mumbai, Bangalore, Netherlands and Indonesia.

Akhil Gupta, senior managing director and chairman, Blackstone India said SHK has unique intellectual property and a strong market presence for over eight decades. "In the domestic fragrance market, SHK is the leader with a large customer base and is the only Indian player of scale. We foresee a huge growth opportunity for SHK both in domestic and other emerging markets, driven by the growth in personal consumption in India, Africa and South-east Asia,” said Gupta.

Last year in March 2011, another PE firm Standard Chartered Private Equity (SCPE) had invested Rs 85 crore in Privi Organics, one of India’s leading aroma chemical manufacturer and exporter. The funding was used to part finance the growth plans of the company’s business through expansion of manufacturing facilities at Mahad, Maharashtra and also support key backward integration projects.

Zee Learn to own and operate 300 Kidzee preschools

An edited version of this story first appeared in DNA Money edition on Saturday, September 01, 2012.

As part of a strategy change Zee Learn Ltd, India's largest operator of preschools under the Kidzee brand, will be setting up 300 centres across the country in the next five years. To be company owned company operated (CoCo), these will be in addition to the over 300-odd Kidzee centres that Zee Learn adds annually using the franchise approach, said a top company official.

Navneet Anhal, chief operating office, Zee Learn Ltd, said the Kidzee vertical is one of the company's main businesses, and the management's decision to invest was taken post a carefully-thought capital expenditure (capex) plan.

"Adding the dimension of 'good to great', a critical change of strategy for our growth phase has been incorporated starting this year. Preschools being our flagship business, the company has decided to make equity investments and set up owned and operated Kidzee centres across the country. Work on five such centres is currently on and we should be opening them within this fiscal," said Anhal.

Introspecting on their strengths with the objective of leveraging it for future growth, the company decided to tap the huge opportunity in the form of company owned preschools considering they had a very good product in the form of Kidzee. The management has thus decided to additionally pursue the CoCo approach (which will also serve are excellence centres for the company's franchise business) for further expansion.

"Preschools being an area of minimal risk thanks to the management's vast experience and knowledge in the space, the company thought it prudent to make further investment in this vertical of their education business," he said.
 

The company is looking at investing around Rs 120 crore in the next five years towards setting up these CoCo Kidzee centres which will be funded through equity infusion plans announced last year and internal accruals. "Each centre will call for an investment of anything between Rs 30-40 lakh as we are not buying real estate but leasing out the space. The money will be invested largely towards creating the right environment including designing, furniture, play equipment etc for the children there," he said.

Zee Learn currently has over 1,000 (signed) Kidzee (franchise) centres across the country of which 850 are fully operational and the balance are in advanced stages of getting operational. "That numbers keep changing monthly as new centres get into the network as and when they are ready for launch," he said.

Taking into account the inflationary changes, the company has incorporated around 10% hike in the fees to take care of administration expenses and provide quality education to the children. Last year Zee Learn did over 300 sign-ups through franchise arrangements and has set a similar target for this year as well.

The company created a new chain of schools last year catering to the upper tier of consumers, branding it as Mount Litera World School and a preschool equivalent of that called Mount Litera World Preschool. While there are two Mount Litera World Preschools already operational in Lokhandwala (Andheri) and Chembur, the first Mount Litera World School is coming up at Bandra Kurla Complex (BKC) in Mumbai. The project is being developed in over 1.4 acre land parcel with state-of-the-art infrastructure and facilities. The school is in a very advanced stage of development and the company is planning a grand launch of the facility in the coming months.

While Anhal did not share specific details of their World School project, a top company official had, in an earlier interaction last year, said that the facility will be an integrated education complex comprising school, media management training institute. The project cost envisaged then was upwards of Rs 50 crore.

The company also has big plans in the area of K-12 schools (kindergarten to XIIth standard) and is planning to set up 400-500 schools under the Mount Litera Zee School banner. To be established largely through the franchise route, these schools will be established in states like Maharashtra, Punjab, Goa, to name a few. The company currently has 50 Mount Litera Zee Schools and plans to sign up 30 franchise agreements in this financial year.

CRH betting on 20% cement price rise with Jaypee bid

This story first appeared in DNA Money edition on Friday, August 31, 2012.

CRH Plc, an Ireland-based diversified group, foresees a 20% rise in cement prices in India in the next 2-3 years if its bid for Jaiprakash Associates’ Gujarat business is anything to go by.

The company is reportedly looking to pick up a 51% stake in Jaypee’s Gujarat operations for an enterprise value of Rs 4,200 crore, or $160 per tonne.

“For this investment to generate a return on capital employed of 16%, we believe CRH is possibly pinning hopes on cement prices moving up by another 15-20%,” said Chockalingam Narayanan, Manish Saxena, and Abhishek Puri, analysts at Deutsche Bank - markets research in their recent report.

Also, the deal, if it goes through at the touted valuations, could lead to re-rating of a number of midcaps, the analysts, who also see prices moving up in the same band, said.

The Gujarat operation under consideration consists of a 3.6 million tonne clinker plant at Kutch with a 2.4 million tonne of cement grinding capacity, and a grinding plant in eastern Gujarat with capacity of 2.4 million tonne per annum, CRH had said in a note without sharing any financial details.

Analysts, while awaiting deal closure, said the price increase could be a short-term phenomenon and may be restricted to the Gujarat market as the plants are located there.

Rikesh Parikh, vice-president - markets strategy and equities, Motilal Oswal Securities, said the stake sale to CRH will not make much difference as JP Associates is likely to continue managing the facility and control the production. “There won’t be a meaningful impact on the overall cement prices as the plant is based in Gujarat,” he said.

Also, for companies to plan their next leg of capital expenditure, the cement prices need to rise another 15%.

“Our demand-supply model suggests that sector upturn could drive cement prices over next 12-24 months on logistical constraints,” the Deutsche analysts said.

Analysts said CRH is a very system-driven operator and its investment at such a premium is a clear indication of its commitment to the cement sector in the country.

“Their entry will make a significant impact on the overall Gujarat market where pricing has been under pressure owing to fragmented market with no capacity addition other than the JPA facility. The Gujarat market has been performing well since a little over two years now as demand has been very good across sectors,” said an analyst from a leading domestic brokerage .

The JPA asset acquisition, analysts feel, will also have a significant impact on the overall profitability of companies in the cement sector.

Historical large-ticket mergers and acquisitions — Ambuja buying a stake in ACC in 1999, Grasim buying L&T’s cement business in 2004, and Holcim buying stakes in ACC and Ambuja in 2005 and 2006, the Deutche analysts said, have led to improvements in profitability and valuations in the sector.

The trend today is to buy latest products on the spot: Anant Bajaj

This Q&A first appeared in DNA Money edition on Wednesday, August 29, 2012. 

Anant Bajaj

One of India’s oldest companies operating in the market for the past 75 years, Bajaj Electricals Ltd (BEL) is a market leader in brown goods segment. Part of the over Rs38,000 crore Bajaj Group, BEL registered a turnover of Rs3,100 crore in the fiscal 2011-12. Anant Bajaj, joint managing director, Bajaj Electronics, speaks about the company’s overall business, competition and new developments. Edited excerpts:

Could you briefly give us an overview of the company’s various lines of businesses and its market reach?
 

We operate six strategic business units viz. engineering and projects (E&P), appliances, fans, luminaires, lighting and Morphy Richards. The company has 19 branch offices spread in different parts of the country and a chain of about 1,000 distributors, 4,000 authorised dealers, over 4,00,000 retail outlets and over 282 customer care centres across the country. We have distribution arrangements with Trilux Lenze of Germany (for luminaires), a tie-up with Delta Controls of Canada (for building management systems) and Securiton of Switzerland (for security systems), Morphy Richards of UK and Nardi of Italy (for appliances), Disney of USA & Midea of China (for fans). We have also invested in Starlite Lighting for manufacture of energy saving lamps (CFL).

Being one of the oldest players in the market, what has been your experience in terms of consumer taste, habits and preferences?
 

The most visible change our consumers have had is that they look at a product in totality and the buying decision is not just based on its pricing. They are now comfortable paying more. Another interesting aspect is that today we are catering to two very different generations. First, our parents who have not seen anything primarily owing to the restrictive business environment in the past. Second, the current generation which is now oblivious to the restrictions. A significant part of this change has come into the market in the last decade or so and a majority of our customers today are in the 18-30 years age group. Technological advances, exposure and education levels have contributed dramatically to this change as consumers want to buy the latest product on the spot.

The market has become very competitive as well with a host of domestic and international players vying for their share. Have you seen any impact on the business?
 

Not really, because we have a large product line something that not many companies can offer. We are a very focused player in the brown goods segment and we are the market leaders in this category as no one comes even close to the size of business we have in the country. We made revenues of over a Rs1,000 crore last year mainly because the business model is such that our products have to give us a payback within three years and should enjoy a long-term market.

Of late, we have seen too many new entrants in the air cooler and fan category which has been Bajaj’s stronghold for a while now.
 

You see these players are on the wrong side of the segment as all of them are mainly chasing the premium segment which might give you a better margin, but supporting volumes are just not there. I mean, how many people can really afford premium products? And if you look at the market, approximately 75% is sub economy and economy, premium is only about 20% and the balance 5% in unorganised. There is absolutely no competition in the categories we operate and we have the highest penetration rate there.

You are not present in the air conditioning products. Is that industry very challenging?
 

There are tow issues that make it very uninteresting for us not to get into air conditioners. One, with the all the R&D to be done and costs incurred, what I get in return is reaching out to a maximum of 1% of the market. And that’s not all, making an impact in this market is really crazy because costs just go through the roof.Besides, if you look at most of the players, they are having a tough time with this product category with piled-up inventory. While A/Cs are an attractive business, it is not something that’s sustainable. After sales service is a headache for A/C companies.In the end, a customer will wonder why should s/he buy my A/C over the other international brands that sell globally? I mean what can you build that is not already available? If you came with it 20-30 years ago, it might have been a success.

Tell us something about the Bajaj World outlets that you are planning to roll out?
 

The Bajaj World format is a retailing platform dedicated to our entire range of products. These stores will be set up as franchisee outlets with a standard layout and design. The real estate will be brought in by the dealer and we will spend towards renovation and designing. We will assure quick return on investment (ROI) of within three months to our franchise partners. We are targeting 50-70 stores in rural India.

Is research and development (R&D) crucial for the company?
 

It certainly is and that is the reason we will be enhancing our R&D infrastructure by setting up a new dedicated unit. While we have an R&D facility within the company, it is not very comprehensive. The R&D set-up will allow us to significantly increase the amount of work in the same amount of time. Work on the new facility is currently on and we should be making it public in coming quarters.

Half of residential projects hang fire

My colleague Promit Mukherjee co-authored this story appearing in DNA Money edition on Monday, August 27, 2012.

Projects moving at a snail’s pace are breeding anxiety among home buyers in the Mumbai Metropolitan Region (MMR), with Mumbai, Navi Mumbai and extended suburbs of central and western Mumbai reporting more than 50% of under-construction residential developments.

The June 2012 quarter data compiled by real estate rating and research firm Liases Foras only confirm those fears, indicating that 30% of residential projects in the island city, followed by 28% in central suburbs and 18% in western suburbs beyond Borivali are delayed by over 24 months.

In the case of projects running behind schedule by 12-24 months, the percentage is significantly higher in areas like Thane (37%), central suburbs beyond Thane (32%), Navi Mumbai (31%) and western suburbs up to Borivali (30%).

Pankaj Kapoor, founder and managing director, Liases Foras, feels the overall scenario could only get worse and that the research firm is in the process of updating the data to be released in September this year.

“The situation hasn’t really improved since June as we have been noticing a consistent gradual decline in construction activity / progress in Mumbai for the past 4-5 quarters. That is precisely how the state of the real estate market is at present. Interestingly, despite declining sales, there has not been a significant correction in the rates per square foot and prices have only been increasing,” said Kapoor.

Every big developer, including the likes of Lodha, HDIL, DB Realty, Runwal and Lokhandwala, to name a few, is facing delays. While securing regulatory approvals posed the biggest challenge, issues related to labour and non-availability of raw materials, among others, proved to be a major roadblock for a handful of developers.

Officials from DB Realty were not available for comment. The media agency representing the realtor, while confirming the slow pace of developments, attributed the same to the complicated nature of approvals and permissions. HDIL spokesperson had not replied at the time of going to print. Runwal and Lokhandwala remained incommunicado, too.

But a Lodha Group spokesperson was upfront, saying the Casa Royale project in Thane is facing a slowdown due to reasons beyond their control.

“Undue and long delays in making decisions by the authorities concerned in providing us approvals and other such unforeseen circumstances have delayed the project. We have given a representation to the Thane Municipal Corporation and taken the matter to the high court to provide us necessary approvals to complete the construction. The high court has issued directions to the authority concerned to decide our representation in six weeks,” said the spokesperson.

But for the buyer, the wait continues. In fact, one who booked a flat in the project somewhere in 2009, was promised that it would be delivered by January 2011, which was later revised to January 2012 and now has been postponed till June 2013. “We are neither getting compensation nor the penalty for the delay as promised since the company is saying the delay is related to issues beyond their control,” she said, refusing to be named.

Acknowledging customers have been adversely affected, the spokesperson said even the Lodha Group has run up huge losses due to input cost escalation and time overruns. While he maintained that there is no delay with the Casa Rio project at Khidkali on the Shilphata road and it’s progressing as per schedule, the buyers have a different story to tell.

“The delays are certainly impacting actual end-users who are finding it difficult to cope with financial pressures in the current marker scenario. It is always thus advisable to purchase in a ready to move in complex, if not buying for the investment purpose,” said Samantak Das, director - research and advisory services, Knight Frank India, a real estate research firm.

Developers are in a bit of a dilemma here, torn between a hardening interest rate environment and soaring input costs, and calls to slash prices as they are already hard-pressed to maintain their current operating margins of 30-35%. The cost of land is by far the biggest factor that has stopped a developer from cutting prices as the product prices need to be linked to the continuously increasing land prices.

“The assets being developed by realtors are proving unproductive which is why we are seeing high debt burden on the real estate companies. It’s a very inefficient scenario and a highly speculative one moving towards fall, making it look like the market is tipping off,” Kapoor added.

Anubha Shrivastava quits as CDC Group’s Asia MD

Anubha Shrivastava, managing director, Asia has quit CDC Group Plc after almost six years of association with the UK government’s development finance institution. Information about who will replace her is not known at this stage as the investment firm replacement is working with search firms to find a new MD.

Confirming the development, Miriam de Lacy, director – corporate communications, CDC Group Plc, said that Shrivastava has decided to move on to pursue other opportunities. “A replacement is being sought but the Asia funds team has been strengthened by the appointment of Hiti Singh and the promotion of Clarisa De Franco, who will both take the role of portfolio director,” she said in an email response.

An active investor in several venture capital (VC) and private equity (PE) funds in India, CDC has invested in entities like Lok Capital, India Inclusion Fund, New Silk Route, Aavishkaar and Baring India Private Equity.
In 2011 CDC came out with a high-level new business plan, with a geographic remit focused on Africa and South Asia. Hence, in addition to acting as a fund-of-funds investor, the investment firm decided to also provide debt and direct investment to businesses in these regions. As part of this change in its strategy, CDC is building a direct equity investment team that will focus on providing equity capital directly to support the growth of businesses, especially in the more challenging regions of Africa and South Asia.

Led by Mark Pay, three new appointments have been made in this team viz. Ross Coul who is joining as investment manager, from Sovereign Capital in London; Rohit Anand joining as investment executive, from IDFC Private Equity in Mumbai and Maheep Jain, also joining as investment executive, who comes with a background in corporate finance from Clean World Capital.

CDC is the UK government-owned development finance institution that uses its own balance sheet to invest in the developing countries of south Asia and Africa. It has net assets of £2.6bn.

Operators, broadcasters miss TRAI’s RIO deadline

This story first appeared in DNA Money edition on Friday, August 24, 2012.

Multi-system operators (MSOs) and television broadcasters have missed the August 21 deadline set by the Telecom Regulatory Authority of India (TRAI) for concluding reference interconnection offers (RIOs).

RIOs refer to the commercial agreements between the broadcasters and MSOs, which beam the channels to local cable operators.

The deals has to happen soon in order to meet the October 31 schedule for a shift from analog to digital cable system in the four metros.

With only a couple of operators making any headway in signing the RIOs, Trai may now have to set a new deadline.

Last week, Wire and Wireless (WWIL) said it has signed digital addressable system interconnect arrangements with Mediapro Enterprises for about 70 channels.

Anil Malhotra, chief operating officer, WWIL, said, “We are in continuous discussions with other broadcasters to finalise the commercial arrangements. In fact, I am sitting with a major broadcaster and working out the structure as we speak,” he said.

Hathway Cable & Datacom Ltd said majority of its reference interconnection offer (RIOs) with broadcasters have been completed a few days ago. “A few still remain to be sealed. We have broadly thought about what will be the packaging like and have come up with three pay tier categories — basic, middle and premium,” said a senior company official.

Uday Shankar, president, Indian Broadcasting Federation, was not available for comments as calls made on his cell phone remained unanswered.

With the digitisation deadline looming, MSOs said they are keen on closing the deals with broadcasters and moving on with the packaging of their various plans to be offered to the subscribers.

A related part of the RIO is carriage fees that the cable TV operators will charge the broadcasters to distribute their channels on their networks. This would eventually determine the retail price consumers would pay for watching these channels.

Rahul Kundnani, research analyst-institutional equities - media & retail, Sbicap Securities Ltd, said, “Both the parties are engaged in long-drawn bargaining as the settled pricing terms will largely determine the content cost of MSOs and the subscription revenue of broadcasters in digitised India.”

Ashok Mansukhani, president - MSO Alliance (a representative body of the Indian cable industry) and whole-time director of Hinduja Ventures, said the timeline set by the regulator should be viewed as an indicative date and not as writing on the stone.

“Some operators have already signed RIOs while others are in advanced stages of discussion. The committee has been updated with the progress in this regard as of August 21, and I am sure things will fall in place shortly,” said Mansukhani, stressing that the timeline was communicated by Trai on August 9.

Meanwhile the inconclusive commercial agreements between MSOs and broadcasters has resulted into slow off-take of set-top boxes (STBs) as cable operators have not been able to create channel packages and pricing structures. Ironically, it was the low STB penetration that had led the government to extend the digitisation deadline by four months.

The Information & Broadcasting ministry had earlier said that Mumbai looked the most prepared with 50% of cable TV homes already having digital STB installations. However, Delhi and Kolkata were struggling with the rate of STB installations around 25% while Chennai was way behind.

A study by research firm TAM in May 2012 to capture the changing digitisation scenario in four metros found that Mumbai was leading in terms digital penetration at 33% followed by Kolkata, Delhi and Chennai at 25%, 24% and 20%, respectively.

Zapping stains et al, premium dhobis are raking it in

An edited version of this story first appeared in DNA Money edition on Wednesady, August 22, 2012.

Every inch of 5aSec, an 800-square-feet fabric care store — or the so-called “super premium laundry” — at upmarket Pali Naka, a busy junction in Mumbai’s posh suburb Bandra, buzzes with action. In a section just behind the apparel ironing area, a female employee is seen treating a garment with some nifty hand-held equipment.

“It’s a laser gun. We use it to remove stubborn stains. Hi-tech processes like this mark our entire fabric-care approach. They make the garment look brand new,” says Suresh D Bhatia, MD of SB FabCare which operates 5aSec, the French textile care brand.

Bhatia is the Indian master franchisee of 5aSec which has three stores in India. Launched 18 months ago in Mumbai, 5aSec is among the new breed of fabric care stores like Pressto, Fabric Spa and Wardrobe that cater to the emerging affluent and aspirational Indian households. Dubbed as textile experts, these players offer consistent quality and service through clearly defined processes and systems supported by latest proprietary technology, state-of-the-art machinery, world class cleaning products and, highly skilled / trained manpower.

But, why do we really need such specialised laundry service providers charging a huge premium over the 25,000-odd small laundries and dry cleaners in India? The answer is very simple. A highly expensive garment / designer wear needs special attention when cleaning to ensure its characteristics remain intact and there is no damage to the fabric or other special material being used to make it.

A Jyothy Labs’ consumer research on the kind of laundry services availed by Indian households clearly brings out three key aspects. Firstly, easy wash items that can be washed at home. Second, items that were difficult to wash at home like bed covers, pillow covers, quilts, blankets, curtains etc; and finally premium garments like expensive sarees, suits, embroidered / designer apparels, leather garments and accessories like handbags, soft toys, shoes etc which cannot be washed at home at all and had to be given to dry cleaner / specialist laundry operator.

“The second and third categories are where households expressed concerns on the quality of the service provider and whether their garments, home linen would be safe if given to them for washing / cleaning / treating etc. We asked the consumer, what kind of a laundry they’d expect and everyone said they would prefer an expert for such set of apparels,” said Ullas Kamath, joint managing director, Jyothy Laboratories Ltd (operators of the Fabric Spa chain).

As experts always come at a price, these stores had to be positioned at the premium price bracket. For instance, if the dhobi / dry cleaner would charge anywhere between Rs 15-40 for a shirt, the specialised fabric care operators would charge a little over Rs 100 for the same shirt mainly because of the processes they employ.

“The pricing (wash cost) mechanism followed worldwide is cost of the garment divided by 10 or 15 but in India it is cost divided by 40. So if you have a saree costing Rs 40,000 the wash cost would be anything in the range Rs 1,000 to Rs 1,500 but if the saree is priced at Rs 1,000 the wash cost will be Rs 150-odd,” said Kamath.

While the fabric care industry started taking shape in 2008, industry experts believe it will eventually become the next coffee chain story of India. And with more and more Indians taking fancy to global premium and luxury brands like Louis Vuitton, Gucci, Armani, Jimmy Choo, Canali, Burberry etc, the demand for such service providers is expected to increase significantly.

“Spending power, emergence of an affluent middle class with 10-100 million households, increasing presence / penetration of premium and luxury apparel brands are fuelling this growth,” said Esther Lennaerts, executive chairperson, Pressto Dry Cleaning & Laundry Pvt ltd, which operates a chain fabric care stores under the Pressto banner.

Initial indicators, by existing operators, peg the growth at 20-30% annually. While setting up a store would cost upwards of a couple of crore the breakeven happens within 12-16 months and in some cases even sooner depending on the locality and the volumes being handled. The usage pattern differs from one household to another wherein some may use the services just 2-3 times in a quarter while a lot of others would avail the services 2-3 times in a week. As for margins are concerned, this business offers gross margins of 50% while net margin is around 20%.

Catering to the increasing demand, Pressto has in the last three years, grown from 5 to 21 stores and is targeting to reach over 100 stores within a couple of years from now. SB FabCare (5aSec) on its part is gradually increasing its presence and will be looking at the franchise route for further store additions going forward. The market leader with 132 fabric-care outlets, Jyothy Fabricare has set a goal of reaching 500 stores by 2015.