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Vikas Oberoi
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This story first appeared in DNA Money edition on Wednesday, December 5, 2012.
Oberoi Realty, the predominantly Mumbai-based developer, plans to enter the Delhi market within a year, joining other city-based realtors such as Tata Housing and Godrej Properties that have recently come up with projects in and around the national capital.
While Oberoi would enter the National Capital Region (NCR) in a year, the company also intends to expand into southern India at a later stage.
Vikas Oberoi, chairman and managing director, said, "Now that we know how to do multiple sites in the same city, we want to look at multiple cities. Markets like Delhi, NCR, Gurgaon and NOIDA will be looked at to start with."
Delhi with its simplified and well laid-out land acquisition processes also has a lot of established developers, he said. "We will soon set up a team and get going with developments there. It's a work in progress for now. Something concrete should happen in the next 12 months." said Oberoi.
While entering other states, he said the company will look for partnerships and initially take up small projects. "We want to set our company for the next 100 years," said Oberoi.
On expansion in other markets, Oberoi said, "In the outer circuit we have kept Hyderabad and Bangalore, but have not gone beyond a particular point in exploring those possibilities. We want to first do Delhi and will see how it works in the next 2-3 years."
On the company's serviced residences and residential development in Worli, Mumbai, Oberoi said the project is in the fairly advanced stage of being launched and details will be made public within the next couple of months.
While the market is abuzz about Mandarin Oriental being signed as the hospitality partner for the serviced residences, Oberoi did not disclose any deal.
With cash reserves of about Rs 1,111 crore, Oberoi has no plans for any fundraising in the future. But the company will have to go for an offer for sale to reduce stake in the company to 75% as mandated by the new guidelines of the Securities and Exchange Board of India.
My colleague KV Ramana co-authored this story appearing in DNA Money edition on Monday, December 3, 2012.
The animation industry is, well, in suspended animation. What started as an action-filled arena in early 2000, with a huge promise, appears to have meandered into wilderness somewhere along the way.
With a revenue pie of around Rs 1,200 crore – which is shared by at least 50 active companies – it remains a poor cousin of the IT-BPO industry, which boasted revenues of Rs 5.5 lakh crore last year.
It all started with the American studios recognising the creative talent available in India at a lesser cost. These studios started outsourcing work to the Indian animation experts, who had their own outfits with equally creative people.
But today, most of these animation units have shut shop, while the remaining few are unable to break the small and medium enterprises mould.
Blame it on a lack of capital and government focus on the sector, and burgeoning costs, say industry experts.
“In a way, we missed the bus. Now, most of the projects are going to Malaysia and China. There are many 3D projects being done in Malaysia. There, the advantage is the Malaysian government is stepping in as an investor whenever the local companies bag an international project. It is not a grant. It is a pure investment and the government takes its share later. The advantage for the company is in terms of ready availability of the initial capital that is required to kick off a project. We are told the local government is funding about 50% of the entire project cost. Additionally, the Malaysian industry is present as a single unit at all the international conferences and the government is sponsoring them. All these measures are helping the Malaysian industry grow,” said Rajiv Chilaka, founder and managing director of Green Gold Animation.
Green Gold’s own situation is representative of the larger story. Though founded in 2001 and employing around 250 people now, the company’s annual revenues are around Rs 20 crore – even that is largely because of a single successful project – Chota Bheem.
Going by Chilaka, without Chota Bheem, the company might have shut shop by now.
To make matters worse, animation has no industry body yet and is represented either by Nasscom, which is an umbrella organisation of software sector, or Ficci.
“It normally takes about five years for any animation company to start seeing the revenues. But, during those five years, the companies need some handholding. Unlike software companies, the animation companies are formed by creative people. They know how to make something more creative or how to narrate a story more creatively, but most do not know business or how to sell a product. This is where the industry needs to have government support. The support is also required by the government’s initiative to mandate the telecast of a certain percentage of TV content in the form of India-made animation content. Most of the channels today depend on imported content dubbed into a regional language,” said D Sravan Kumar, a senior functionary of another animation company.
On the content side, detractors have long criticised local animation as being dependent on mythology or unable to go beyond grandma stories, though some argue that the success of series like Krishna vindicates the belief that mythology still sells.
As such, the odds appear to be stacked against the industry.
“Domestic work has been caught in a different cycle altogether as there are people who want to watch animation content that conform to international level/ standards. However, the number of such people who will pay high ticket prices to watch such content is too small, so a producer investing Rs 70-80 crore in an animation movie will only be able to recover Rs 10-15 crore odd from the release and other ancillary revenues. So there is a huge gap between costs versus revenues and unless that equation has been fixed one cannot have a widespread domestic release that is viable enough,” said Raghav Anand, segment champion - new media, Ernst & Young.
Analysts feel the industry size would definitely grow if the government had a digital media strategy and also an intention to promote animation in the education sector, rather than limit it to entertainment.
A Ficci-KPMG report has projected the animation and VFX industry size for 2012 at about Rs 3,600 crore and the gaming industry size at Rs 1,800 crore. According to the report while local characters are gaining popularity, a number of shows scripted and conceived in India are being executed in destinations like Indonesia, Singapore and Argentina, where animation costs are reported to be more economical compared with India.
“The global animation and gaming market is expected to grow from $122.20 billion in 2010 to $242.93 billion by 2016. This represents a compounded annual growth rate of 13% from 2011 to 2016. In comparison, the Indian animation industry is estimated to be Rs 1,130 crore, which is a small percentage of the world animation market. This gives the industry tremendous growth potential. It is estimated that the Indian animation industry will grow by a CAGR of 16% and will be Rs 2,397 crore by 2016,” the Ficci-KPMG report said.
A K Madhavan, chief executive officer, Crest Animation Studios, is not in agreement that animation projects are moving out of India.
According to him, high-end jobs continue to come to India. It is the low-end jobs that could be going to countries like Malaysia, Thailand. In fact, the quality and volume of work is much higher here than in most other Southeast Asian countries.
The biggest challenge, however, is finance.
Animation services companies require constant funding, and at regular intervals.
But banks are not forthcoming enough in funding the projects despite the notable success some animated movies have had at the box office, to say nothing of home video sales and merchandise. The banking and financial sector still hasn’t understood the way business happens in this space.
“A price-pressure situation came into play primarily in the low-end volume projects once studios started to evolve. Being more cost-effective, a few other destinations in the southeast Asian region started eying this low-end volume business. As a result it became necessary for Indian animation companies to evolve and get into the mid- and top-level of work that didn’t require as many people vis-a-vis the low-end volume assignments. This in turn has impacted hiring activities as only a certain number of people can be absorbed for that kind of work. That was the scenario in the last two years which is why you see some of these negative news coming in. Where animation was supposed to be the next big thing like IT that’s not how it has really played out,” said Anand.
Given all this, it is likely that only a few players will survive in this market in the years to come. Mergers and acquisitions (M&As) are a distinct possibility, too, said Madhavan.
He feels, greater support from the government is unlikely anytime soon and hence, the animation industry will have to come together and find a way out.
“Animation companies will have to design different structures to deal with the financial challenges. Crest Animation, for instance, has partnered with the distributors and producers of animation films and this approach has worked really well for us,” he said.
Anand appeared to concur. According to him, animation, unlike the IT industry, is creative plus technology and it has three growth cycles. Initially when it started, low-end volume is what was largely coming to India. Subsequently a lot of companies came into play thereby creating huge employment opportunities and demand for manpower in this space as a result we had a host of animation schools and colleges churning out students.
“The third phase that we are entering now is really a phase where some of the animation companies are also sharing the risk. As a result, we are now seeing a shift from pure production related activities to now actually owning the intellectual property (IP). And in case of projects from international markets, companies are trying and co-investing in certain IPs. The animation house in India which was traditionally doing outsourcing work would now be a co-producer of a series and taking between 40% to 50% risk depending on their capacity,” said Anand.
“Five years ago, all the quality work would be done out of London and India would deliver the low-end volumes. Now, some of the quality work has started to come to India and low-end is going to other cost-effective destinations,” he added.
Anand remains optimistic that work that requires some experience to execute will find its way to India.
“If only a handful of players have to succeed then the market forces can pretty well find their way. However, if the industry has to grow in a broad based manner, there are 3-4 things needed,” he said.
First, there should be promotion for domestic content in television, cinema theatres etc. and there should be specific incentives around that.
Second, there should be specific incentives (tax breaks etc) for companies/ entities doing the outsourcing work.
Third, for producers getting their work out of here, there should be incentives for them as well which will eventually motivate them to look at the Indian animation services providers.
And finally, there has to be quality training of people while their time in the institutes so that they get absorbed for high quality work after having completed their respective courses. “And there has to be government support in this area as well,” said Anand.
My colleague Priyanka Golikeri is the lead writer of this story appearing in DNA Money edition on Monday, December 3, 2012.
There was a time when word-of-mouth about private tuitions for school kids was enough to generate secondary income for neighbourhood Aunty. Now, she has to contend with corporatised business ofcoaching classes / tutorials that cover not only school and college examinations but competitive tests for a range of educational courses and jobs.
After all, organised tutorials are now a $ 5 billion (Rs 27,420 crore) business. Experts say the overall coaching classes businessis highly fragmented with several unorganised players. “This makes consolidation the need of the hour,” said Arks Srinivas, CEO of VistaMind, an MBA entrance exam firm.
Welcome to the age of ‘knowledge is money’ where partnerships, buyouts and countrywide alliances are the norm, providing not just easy access to remote areas but direct entry into new exam spaces.
For instance, last week, Mumbai-based MT Educare, a well-known, listed coaching institute for school and board exams, entered the IIT and medical entrance exams space by buying a 51% stake in Punjab-based Lakshya Forum.
Mahesh Shetty, CMD of MT Educare, said this acquisition will broaden the company’s science offering as well as reach.
Agreed Pramod Maheshwari, MD of Kota, Rajasthan-based Career Point Infosystems, an institute tutorial specialising in IIT-JEE and pre-medical entrance exam coaching. “Local partners are already well-versed with the complexities of a region, including people’s payment capacity, income levels and career choices. That proves a big help indeed.”
MT, it seems, emulated Career Point and CL Educate, an MBA and engineering entrance coaching firm that expanded into law exams by acquiring Law School Tutorials.
Satya Narayanan, founder and chairman of CL Educate, said getting into a new segment requires competence in the area concerned. “It works out better through some inorganic moves rather than expanding organically.”
According to Narayan Ramaswamy, head of education practice at KPMG India, tutorial classes are a local or region-specific activity with a large presence in Tier II and Tier III cities. “Established players in Tier I cities won’t mind paying a certain premium to build scale in unexplored markets.”
More so because some exams (like bank clerical tests) have gone online, requiring methodical, rigorous practice that only major tutorials with their technological infrastructure can provide, leaving small local coaching schools easy buyout targets, said Narayanan.
If not outright acquisitions, larger firms buy partial stakes and provide smaller partners with web support, test and study material, said Srinivas.
Then there is the option of franchises and direct expansion via branches. “We will look for opportunities in south and west where we currently do not have much presence,” said Maheshwari.
My colleague Sachin P Mampatta contributed to this story appearing in DNA Money edition on Monday, December 3, 2012.
With stock markets starting to look up, exits relating to private investment in public equity (popular as PIPE) are gathering pace as well. For, rising markets mean opportunities galore for cashing out.
Experts said markets seem to be offering price-to-earnings multiples in the 10x-25x range, depending on sectors like FMCG, metals, so on. CLSA’s recent exit from Apollo Hospitals has already set the tone, and many more such deals are expected in the coming months.
Venture Intelligence, which researches private equity and mergers and acquisitions (M&As), said 23 PIPE exits worth about $1.85 billion (Rs9,877 crore) have happened already this year. In addition, private equity (PE) firms made another 23 secondary exits worth $404 million (Rs2,192 crore).
Avinash Gupta, head offinancial advisory at Deloitte India, said some of the prominent PE exits were from stocks like HDFC, Kotak, Apollo Hospitals – companies that have shown growth and boast quality management.
Stocks of companies that are riding domestic consumption, those outside regulatory framework and financial services firms are likely to see PIPE exits because there will likely be many ready buyers in the current environment.
This year’s exits, observers said, relate to investments made after markets collapsed post the 2008 Lehman crisis. Then, PE firms had turned to stock markets because private placement opportunities were few and far between. In contrast, 2005-07 did not see too many PIPE deals as most transactions then were genuine PE investments.Turn to Page 14
Money was raised and invested in pure PE placements, industry experts said.
In 2007, per-year investments peaked at $19 billion, but the best returns on an annual basis were no more than $5 billion. “In the last four years, returns totalled only $20 billion,” said a top official from an international investment advisory.
The 2012 PIPE exits from stock markets would gather pace because not many happened in recent times. Few exits all these years had hampered Indian PE activity, said Dinesh Tiwari, director, Multiples Alternate Asset Management. “From 2005-06 onward, over $40 billion of PE money would have been invested. Assuming that the minimum holding period is 3-4 years, exits now could be worth as much.”
Darius Pandole, partner at New Silk Route Advisors, said exits are crucial for additional capital flows into the Indian PE industry. “PE firms seek to return more capital back to their limited partners (LPs). If this can be achieved over the next 1-2 years, additional capital will flow into Indian PE activity,” said Pandole.
LPs are large funds that invest in PE funds. PE firms manage money raised by such funds and invest in different companies, assuring a certain rate of returns to LPs.
Another form of PIPE exits is through initial public offerings (IPOs). For instance, some PEs will likely exit Bharti Infratel which is set to raise Rs4,500 crore through its IPO. The company will sell about 14.6 crore new shares. Four of its stockholders, including arms of Singapore state investor Temasek and Goldman Sachs, will selling 4.27 crore shares, according to a regulatory filing.
There were not many IPOs this fiscal. But with markets buoyant again, companies that have been waiting all this while to tap them, will go ahead with their IPOs. So, more PE exits are likely, experts said.
This story first appeared in DNA Money edition on Friday, November 30, 2012.
Film exhibition firm PVR has become the largest multiplex operator in the country, pipping Inox-Fame combine and Big Cinemas to the post.
The company on Thursday announced that it has acquired the Kanakia family’s 69.27% stake in BSE-listed Cinemax India at Rs 203.65 per share, totalling Rs 394.97 crore, through its wholly owned subsidiary Cine Hospitality Pvt Ltd.
PVR currently has 213 screens across 46 theatres. Add to this Cinemax’s 138 and the screen count increases to 351 following the deal, bringing it closer to its target of 500 screens in the next three years.
“The proposed acquisition of Cinemax will create the largest movie exhibition chain in India,” Ajay Bijli, promoter of PVR said in a statement.
On his part, Rasesh Kanakia, promoter of Cinemax, said, “The deal will enable us to ensure greater focus on our real estate and hospitality businesses.”
PVR has also made an open offer for acquiring a further 26% stake under SEBI rules.
If the open offer is fully successful, it is likely to spend an additional Rs148.26 crore (at offer price of Rs 203.65 per share) to buy 72.80 lakh shares from the public.
The total cost of the acquisition will then be around Rs544 crore.
PVR is likely to part fund this acquisition, through a preferential issue of equity of 1,06,25,205 shares at a price of Rs 245 per share amounting to Rs 260 crore to its promoters, existing investor L Capital and Renuka Ramanathan-led private equity investor Multiples Alternate Asset Management (Multiples).
Through the issue, Multiples will invest around Rs 153 crore, L Capital would invest around Rs 82.3 crore and promoters would invest around Rs 25 crore into PVR. Post the equity dilution, both Multiples and L Capital would own around 15.8% stake each in the company and the promoters will hold 32%.
The management is also holding an extraordinary general meeting in the first week of December to consider and pass a resolution on raising the borrowing limit from Rs 300 crore to Rs 1,000 crore.
Analysts see the Cinemax acquisition move as a positive one for PVR.
“First, PVR will become the largest player in the segment post this acquisition. Secondly, adding the Cinemax screens to its portfolio will not only increase PVR’s revenues but will enhance profitability from Day One as Cinemax is a profitable chain already,” said an analyst with a leading domestic brokerage, requesting anonymity.
Amit Patel, an analyst with Angel Broking, concurred. “This transaction is a positive development for PVR and the price appears to be a very fair value. The impact is clearly visible from the way market has reacted to both the stocks.”
According to industry experts, setting up these many screens on its own would have cost the company around Rs 350 crore, at Rs 2.5-3 crore per unit.
However, it would have had to operate these at a loss for at least 2-3 years until they became profitable.
The PVR stock hit an intra-day high of Rs 275 on the news before closing at Rs 255.45, up around 8% from the previous close.
Shares of Cinemax, on the other hand, gained nearly 5% to close at Rs 184.25 – a new high.
If anything, analysts are not sure how the company will fund the acquisition.
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| Rajeev Talwar |
This Q&A first appeared in DNA Money edition on Wednesday, November 28, 2012.
Rajeev Talwar, executive director of DLF Ltd, says the country’s largest realtor is discussing taking up an ongoing development project in the megalopolis. Overall, he said things are better in the real estate sector and high inventories will act as a price ceiling as boom returns. Excerpts from an interview...
DLF currently has no project in Mumbai. Any plans to have one going forward?
We do have an interest in a very large and prized development in Mumbai. This project will be taken up with our partners very soon. We are currently doing the initial part of what we were supposed to do in that project. This is an ongoing project and one would be able to see a lot of construction activity on the site but the commercial part will be launched in consultation with our partners at a later stage. So the rehabilitation part has been taken up first, post which we will launch the residential development. I would be in a position to share precise details only later. Any announcement timeframe for this will be done once the partners have arrived at a mutual decision.
What is the story on DLF’s debt reduction?
We are working towards it. The Mumbai land deal with Lodha has concluded, money received and utilised towards cutting debt. Similarly, there are negotiations going on for the sale of Aman Resorts and wind-power business. We are quite confident of closing these transactions within this fiscal. Some funds are stuck with various departments of the government and various states – that should kick in as well. This apart, money would also flow in as a result of new launches happening in the coming quarters. So, we are well within our target of achieving Rs18,500 crore of debt (from Rs21,000 core) this fiscal. We are targeting to bring it further down to Rs15,000 crore the next fiscal.
How confident are you about closing the Aman Resort sale, considering the valuation concerns? It’s been in the works for a long time now.
These are complex financial transactions and they do take time because of the paper and legal work, but we are working very hard to close the deal. Valuations are a matter of international analysis and there is no point speculating over it. While we would certainly want to sell it at the highest price, the buyer would want it at the fairest valuation. It’s a two-way process, talks are ongoing and being held in India and overseas. We are extremely hopeful of completing the deal within this fiscal.
The new launches being planned -- will they be specific to certain markets or geographies? How much money are you expecting to receive from these launches?
We operate in a large number of states across the country, so launches will happen across the country. The launches spread over the next couple of quarters should give us anything between Rs2,000 crore and Rs3,000 crore. The money thus received will be very helpful in reducing debt further.
What’s the outlook for next year?
I think everyone – the policymakers, decision-makers, the finance minister, the Prime Minister himself – is looking forward to a much better year. I think they are working hard at it and in whatever way the private sector can contribute, I am sure we will. It will not only help the nation, it will also help us in turn. To come out of a cycle of low growth is a very difficult task for the nation but am sure it can be done.
What's the current business environment for realtors?
To tell the truth, it is looking up a little. But a lot remains to be done. If the quarter-on-quarter (Q-o-Q) GDP growth rates don’t show any improvement despite a good crop, we’d need a stimulus. If that happens, the overall business environment will look better, including for real estate.
What can spur the sector?
Finance minister’s persuasion on home financing by public sector banks. If food inflation gets under control and interest rates come down for individual buyers of homes, that would be great. A large inventory remains at the moment, which could open up for rental incomes once the economy starts looking up.
Then there are reforms required in the area of sanctioning supply. I think the time cycle taken over sanctions and then for construction to commence is fairly long in various local bodies or as a nation put together. If this can be cut down, supply will sync with demand. One must remember that real estate is a long-cycle industry and it takes 3-4 years to catch up with demand.
Unsold inventory is a major concern in the industry…
In a way, we are very fortunate in India that there is a large numerical inventory available. That’s because when there’s an economic upturn, price bubbles get created. The current inventory can take care of demand for the next 12-24 months, which gives enough time for the market to establish equilibrium between the demand and supply cycle. Despite difficult circumstances, building and construction activity did not plunge. And, overall, there has been investment by companies like Godrej Properties and Tata Housing, that are doing very well today.
But prices have shot through the roof and houses are not affordable anymore...
All those saying this belong to only super-metros. I don’t think people outside the four cities of Delhi, Kolkata, Mumbai and Chennai would agree with such a perception. And everyone in these four metros refers to only the established parts of the city where supply is low. As a result, there is significant increase in prices per square foot (psf). It is a fact that in satellite cities or in peripheries of towns, you have prices that are very affordable. I think from anywhere from Rs 2,000 to Rs 4,000 psf, which is rather affordable than expensive.
But houses in even the extended suburbs of, say, Mumbai remains unaffordable.
Areas connected to super-metros will certainly have that kind of a situation. Land prices in such locations play a significant role in increasing the overall cost of an apartment and I’d assume that would have been the case. That apart, one will also have to look at the kind of margins these developers are operating in. Having said that, if you look at cities like Ahmedabad or cities in south India, one can still find apartments that are priced in the Rs2,000 to Rs4,000 psf range. My personal view is that housing is still an affordable expense. But people want to live close to the heart of the city where housing for the middle class remains a dream because prices are so high.
Mumbai developers seem to be fascinated by luxury developments…
I think Mumbai is a well-developed market. Everyone calls their project a luxury development because that’s the catchword for a good quality of life and nothing more than that. While developers do talk about luxury, the size of Mumbai apartments is still small. I must say the developers are doing a very good job. The credit to a large extent also goes to the citizens as they use space extremely well. Mumbai is one city where one has seen that right from the floor to the ceiling, every inch of space is used optimally. I think that’s an extremely efficient usage of space. Developers are able to squeeze in two or even three bedrooms even in a 1,000 sq ft flat. That’s is not the case in other cities. While land prices in Mumbai are certainly a matter of concern, a liberal regime with respect to floor space index and floor area ratio will help to a great extent in arresting unaffordability – larger the supply lower the price. These are a few things our colleagues in Mumbai will have to pursue aggressively because the city does face a shortage of supply.
My colleague Nupur Anand co-authored this story appearing in DNA Money edition on Saturday, November 24, 2012.
Sir Martin Sorrell, CEO of WPP, the marketing communications giant, says global companies are sitting on as much as $2 trillion (Rs 11 lakh crore) cash instead of spending because of an overwhelming sense of caution.
As a result, their focus has shifted to the very short-term, quarter-on-quarter, instead of a year or more, he said at an event on ‘How the world views India — opportunities and challenges, 2013 and beyond’ organised by the Bombay Chamber of Commerce and Industry on Friday evening.
The ad maven predicted 2013 will be a difficult year with not many significant events scheduled. “2014 looks better with big events happening including in Russia and Brazil,” he said.
According to him, there are four potential Grey Swan events facing the globe: the euro zone crisis, the Middle East crisis, the repercussions of change of guard in China and America’s gargantuan debt burden.
The economic / financial crisis in euro zone has shifted attention to BRIC countries primarily India because it is witnessing better growth, increased levels of success and lots of smiling faces, though politically, it’s a minefield, while the Middle East has become totally unpredictable, he said.
In China, the new leadership’s strong message on corruption has instilled great confidence, he said. “Within two years, major changes are expected there,” he said.
Lastly, with $16 trillion debt, Sorrell doesn’t know what is really happening in America. “The new administration will have to get its act together fast. And they can’t keep ignoring the Gorilla in the room. There has been significant erosion in confidence, and most companies have missed their topline forecasts earlier. The post-October period is looking better, though,” he said.
Meantime, Sorrell said India remains better placed than other nations because of easy accessibility, increased growth, success rate and smiling faces.
“India is a vital destination, more important than other countries because the access to companies here is significantly easier compared with many other nations. Populous, rapidly growing countries like India will contribute to global growth,” he said.
Sorrell said today India has a series of successful companies and a good number of big names globally are Indian – praising what Tata Motors did with Jaguar Land Rover or what Mahindras, Ambanis, Mittals have done.
“However, I find visits to India very disturbing. The abject poverty outside the pristine campuses in Bangalore is unnerving at a mental, psychological and emotional level. In fact, this is the reason why I like going to China more. It is not that there is no poverty in China but just that they have done a better job at concealing it with the investments in infrastructure,” he said.
This story first appeared in DNA Money edition on Thursday, Nov 22, 2012.
Cipla has offered to acquire a 51% stake in Johannesburg Stock Exchange-listed Cipla Medpro South Africa Ltd, which has been marketing its products in the region. The offer price of 8.55 rand per share, an 11% premium on Cipla Medpro’s closing share price on Tuesday, takes the overall deal value to $220 million.
Cipla Medpro, the third-largest pharmaceutical player in South Africa, sources almost 80% of its products from Cipla and has been a sort of captive front end for Cipla. It has a turnover of over $200 million, according to S Radhakrishnan, wholetime director of Cipla Ltd.
However, the Mumbai-based company does not own any stake in Cipla Medpro as of now. Radhakrishnan said discussions between the two companies have been on for a while.
Analysts lauded the move as a strategic one, which would give Cipla long-term rather than short-term benefits.
"My understanding is that the acquisition may not necessarily be earnings per share (EPS) accretive. If one draws a parallel between revenues from Cipla’s Africa business and Cipla Medpro’s South Africa business and then compares it with the overall acquisition cost, its impact on Cipla’s EPS is just about 60 paise, which is not very huge. So what Cipla is primarily buying into is Cipla Medpro’s distribution strength in South Africa as part of a forward integration process. Besides, this acquisition will also help Cipla cut costs significantly,” said an analyst with a top domestic brokerage, requesting anonymity.
Cipla plans to fund the deal through internal accruals.
The management is open to more such opportunities, said Radhakrishnan. “At the moment, there is nothing specific on the anvil. However, from a business prospective, we are open to doing what is required for the company’s growth.”
A Reuters report said the agreement was spearheaded by Cipla Medpro’s founder and former chief executive, Jerome Smith, who quit last month following charges of ‘gross misconduct’. There was speculation in the market that Smith’s departure could impact Cipla Medpro’s relationship with the Indian company.
Radhakrishnan, however, denied the events were connected.
This story first appeared in DNA Money edition on Wednesday, Nov 21, 2012.
New York-based StrawberryFrog, which prouds itself as the world's first ‘cultural movement’ creative agency, has set foot in to the Indian market. Founded in Amsterdam in 1999 by Swede Karin Drakenberg and Scott Goodson, the India operations of StrawberryFrog will be headed by Raj Kamble who joins the agency as managing partner.
Kamble was earlier associated with BBH India, the UK-based Bartle Bogle Hegarty (BBH) Network's Indian arm. He moved out of BBH India in January 2012.
Specialising in devising movement strategies and programmes for its clients, Scott Goodson, founder and chairman, StrawberryFrog, believes now is the perfect time to come to India and take that leap — akin to a frog that can leap 60 times its height.
Interestingly, StrawberryFrog is the rarest frog in the world and comes from South America. Being a poisonous frog, the agency’s briefs, Scott said, always look for the most effective poison.
“StrawberryFrog has a culture of collaboration, fun and agility and jugad. India is a very important market for a host of international brands. Besides, a lot of Indian brands / companies are globalising and expanding across the world. I think this is just the perfect time to come to India and open up an alternative global marketing company,” said Goodson. Among the agency’s clientele include names like Mahindra & Mahindra, Google, Microsoft, P&G, Emirates, LG etc.
In addition to his role as global chairman of StrawberryFrog, Goodson recently published a new best-selling book ‘Uprising’. He has also been on the Cannes Titanium jury and writes for Harvard Business Review (HBR), Forbes, Huffington Post and Fast Company.
Elucidating on the agency’s cultural movement strategy, Scott said, the traditional advertising was primarily based on a model of providing marketing messages through television. “That’s changing. If you have a 16 year or 20 year old daughter or son, you realise there are other channels of communication that are equally important if not more important. In the United States there were soap operas, which were TV programmes created by advertisers of soap because women / mothers would watch it. All those shows disappeared about three years ago because mothers in the US (with an average age of around 24) no longer watched television,” said Goodson.
With new media especially digital and internet making a huge impact on the consumer behaviour / perception about a company or a product, Scott feels it is very important to tap each and every medium, build a movement through universal messages and create communities that will also connect with products and services being offered.
“No one wants to live in a smaller world today. Everyone wants to be in a connected world inspired with ideas, progressive dynamic thinking, they want to be alive. People are defocusing from the TV medium and a large part of the consuming population is online on Facebook etc. So how do you device a marketing strategy that’s coherent at a time when media is becoming so fragmented.
“A movement marketing strategy is all about finding an idea on a rising culture that is relevant to a wider audience across the span consuming your product. And once that’s done, you tie that idea back to the brand which then becomes central to that movement. Brands can identify, crystalise, curate, lead and sponsor a mass movement. Once you have a movement, you can do anything in a fragmented media environment,” said Goodson.
StrawberryFrog’s Indian arm is expected to get fully operational by the end of this month i.e. November 2012. While the company has already hired respective operational heads, Kamble refrained from sharing details saying, “We have some people on board but cannot disclose at this stage.” On the agency’s media strategy in terms of planning, buying etc Kamble said, “To be honest we haven’t figured that out yet.”
Talking about how has the agency dealt with this aspect of business in the past, Goodson said, “We generally work with partners and that’s what we are looking to do in India as well. Many clients have their own relationships so you can either plug into them or if they don’t then we can bring a partner and work with them.”
Business Editor Raj Nambisan is the lead writer of this story appearing in DNA Money edition on Wednesday, Nov 21, 2012.
Indian Hotels Company Ltd, which runs the Taj Group of Hotels, is altering its business model, according to people familiar with the development.
Till now, the country’s largest hospitality chain has been constructing hotel projects itself, which often leads to cost over-runs and clogged finances.
Under a new model, all hotel projects of the company will be executed by Tata Realty & Infrastructure Ltd (TRIL), while IHCL will manage them, one person said.
TRIL has already entered into an agreement with IHCL on this, another person said, adding the company has taken over -- or is in the process of doing so --three projects.
Officials of both Indian Hotels and TRIL refused to comment.
The Tata hospitality jewel has been financially stressed, posting net losses for the last four quarters. In July-September, the company reported a net loss of Rs67.82 crore on a net sales of Rs813.80 crore as against a net loss of Rs52.59 crore (on net sales of Rs743.86 crore) in the corresponding period last year.
The company owns and manages 115 hotels with 13,887 guestrooms under the Taj, Vivanta, Gateway and Ginger (through subsidiary Roots Corp Ltd) brands.
Traditionally, ownership and managing the operations (or management) are the obverse and reverse of the hotel business.
When management gets separated from ownership, it takes out all hotel assets from a company’s books but there is little clarity on whether IHCL will go the full tilt on this path – of spinning off the ownership of other properties that it already owns, especially marquee estates such as the Taj Mahal at Gateway of India.
An analyst with an audit firm, who did not want to be named since he’s not authorised to speak to the media, said a spinoff significantly enhances valuations and shareholder value. It also brings in efficiency with respect to taxation and better profitability.
IHCL has often talked about going asset-light.
"I am not at all surprised if the Tatas are thinking on those lines. While there aren’t too many examples to cite in the Indian hospitality market, that’s exactly how international players -- be it Marriott, Starwood or Hilton -- have restructured to become a pure-play hotel management companies," said a top hotelier also requesting anonymity.
In a similar exercise early this year, the Warburg Pincus-funded Lemon Tree Hotels separated ownership and management. The Patu Keswani-promoted entity then went on to also set up a third-party hotel management company and introduce new hospitality brands.
