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| Guy Nixon |
This story first appeared in DNA Money edition on Saturday, December 15, 2012.
Go Native, the London-headquartered serviced apartment operator, is looking at expanding its brand in the Indian market to cash in on the growing demand for long-stay accommodation from its clientele in Europe, Middle East and India.
Guy Nixon, founder and CEO, Go Native, who was recently in India for client meeting, said, “We would love to explore opportunities to expand out brand in India. We would be keen to meet property owners who would like to work with the Go Native franchise.”
The company has a network of 25,000 serviced apartments, a large part of which is branded and operated by Go Native in London and Edinburgh. It also works with operators across the UK, Europe and the Middle East catering to clients’ need for housing in these regions.
Elaborating the company’s business model, Nixon said most of properties in the network are on 10-15 year management contract. “We brand and furnish the buildings and run them a bit like hotels but they are all apartments,” he said.
On the Indian market, he said, “We have been housing Indian people in the UK for over 10 years now. We have learnt a lot about the Indian market in that timeframe and have good understanding of their needs for housing. Their primary requirements are good quality accommodation, value for money, sensible pricing, good transport connectivity, preference to live within a community and close proximity to the workplace,” he said.
Go Native operates three-, four-, and five-star buildings and pricing depends on how long people are staying. In comparison to hotels, the rates at fully equipped serviced apartments are 20-30% cheaper while offering a lot more space.
While the duration of stay varies from company to company, Indian business travellers generally use Go Native apartments from 7-14 nights on the lower side going up to 1-6 months or more when coming on knowledge transfer and long-term projects.
“Banking industry forms large part of clientele from Mumbai while it is technology sector from Bangalore, Hyderabad and Chennai. It is a fairly mixed one in terms of companies from New Delhi,” said Nixon.
An edited version of this story first appeared in DNA Money edition on Friday, December 14, 2012.
Anil Ambani promoted Reliance Group is foraying into the Indian real estate sector. The diversified Indian business house has partnered with one of China's largest multi-billion dollar enterprises Dalian Wanda Group to set up a joint venture (JV) that will undertake real estate developments in the country. Financial details pertaining to the JV were not disclosed. The two groups are likely to also explore synergies in the film exhibition business (through Reliance MediaWorks Ltd) as the Chinese entity is among the leading multiplex players in the world with over 6,000 screens.
Anil D Ambani, chairman, Reliance Group, said that the Reliance Group has become the single largest trading partner between India and China over the past few years. "We have built strong relationships with a large number of leading corporates, and major financial institutions and banks in China. We are now looking forward to extend our strategic partnership to the highly successful and dynamic Wanda Group, in a manner that will tremendously benefit both groups, and unlock substantial value for millions of all our stakeholders,” Ambani said in a media statement.
The Reliance-Wanda JV is the fourth such association between an Indian company and an international real estate development firm. Earlier in 2004, Puravankara Projects Ltd had collaborated with Singapore's Keppel Land Ltd for a 49:51 JV to develop integrated townships across India. Following suit was another partnership in 2005 between ICICI Ventures and US real estate development company Tishman Speyer Properties for realty projects in the country. Thereafter in 2007, India's largest realtor DLF Ltd formed a joint venture with a privately owned international real estate firm Hines to develop a major office tower in Gurgaon.
Industry experts said that the Reliance-Wanda is certainly a unique and positive development for the Indian real estate industry. "This comes at a time when majority of the global economies excluding Europe are on a recovery path. Indian economy is also likely to recover within the next couple of years. Keeping this scenario in mind, the joint venture is an exciting development for the real estate industry," said a top official with a international property consulting firm.
As for the nature of developments to be undertaken by the proposed JV is concerned, Reliance Group said in the media statement, "It will be to develop integrated township projects in India, including but not limited to commercial buildings and residential condos / apartments, hotels, retail space, etc."
To start with, the JV will develop the land parcel owned by Reliance Communications Ltd (The Dhirubhai Ambani Knowledge City complex in Navi Mumbai spread across approximately 135 acres) having the potential for development of over 10 million sq ft, subject to necessary approvals. Similarly, another 10 million sq ft will be developed area in a phased manner on 80 acres owned by Reliance Infrastructure Ltd in Hyderabad. The said land parcel has unlimited floor space index (FSI) for development for commercial and residential purposes, hotels, etc.
Wang Jianlin, chairman, Wanda Group said that India is a rapidly developing economy and huge market potential. "Wanda is very excited about the opportunities in the Indian market. By joining our strengths together, we hope our cooperation will bring mutual benefits and great results,” said Jianlin.
Among leading real estate developers in the world, the Wanda Group has built over 130 million square feet in 66 integrated projects across 50 cities in China. Going by the scale, Reliance Group is primarily banking on the expertise and demonstrated track record of the Wanda Group to execute its realty developments in India.
This story first appeared in DNA Money edition on Thursday, December 13, 2012.
Five years after creating ripples with restaurant chain Punjab Grill, celebrity chef Jiggs Kalra along with son Zorawar has now collaborated with Mirah Group for a new venture.
The new entity, Massive Restaurants Pvt Ltd, will set up a chain of fine-dining, smart casual dining and luxury mithai (Indian sweets) outlets across the country, which would be expanded to select international markets after a year.
Gaurav Goenka, director, Mirah Group, told DNA that Massive Restaurants is a joint venture with Mirah Hospitality, in which the Kalras hold a majority stake.
“The food and beverage (F&B) concepts will be created by the Kalras and Mirah will leverage on its experience in the real estate and operational matters,” said Goenka, adding that within three years the JV will be India’s largest restaurant chain operator.
The fine-dine restaurant will operate under Masala Library by Jiggs Kalra brand, while it will be Made in Punjab for the smart casual restaurant chain.
The luxury / premium mithai chain will be operated as Mithai by Jiggs Kalra. All the brands and trademarks will be held under the new venture.
Jiggs Kalra, partner, Massive Restaurants, said the venture will endeavour to provide patrons to experience a culinary journey while capturing the grandeur of centuries-old traditions and the long-lost essence of one of the oldest known culinary traditions in the world.
“The fine-dining restaurant will recreate the erstwhile culinary traditions to offer a truly gastronomical adventure for connoisseurs of fine cuisine,” he said.
The JV has set a target of 11-12 outlets (between the three brands) in the next 12-16 months.
While initial investment is pegged at around Rs25 crore, the overall capital expenditure in the coming years is envisaged at about Rs40 crore, which would be funded internally.
Zorawar Kalra, partner, Massive Restaurants, said two fine-dining, four smart casual restaurants and five mithai stores were targeted to be set up for the next fiscal.
The first fine-dine restaurant is expected by April at Bandra-Kurla Complex in Mumbai.
“These would ideally come up in the Mumbai and Delhi and eventually be opened in the other top 8-10 cities, including Bangalore, Kolkata and Chennai. With a seating capacity of 90-100, the fine-dine restaurants will be spread across 3,500-4,000 sq ft, while it will be 115 seats across 3,500 sq ft for smart casual restaurants. The mithai outlets will range 300-1,500 sq ft,” he said.
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Piyush Pandey
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This Q&A first appeared in DNA Money edition on Thursday, December 6, 2012.
Piyush Pandey, executive chairman and creative director, South Asia, Ogilvy India, does not believe in doing the most popular thing in the market. He would rather try and create something that can be very popular and needs deeper thinking. For instance, item numbers have been very successful, but will he do one? “No. I’d rather find something else which is better, otherwise it becomes a formula and I don’t believe in formulas,” he said. Edited excerpts...
What are the three things that make Ogilvy click so well?
I’d say belief, respect for the consumer and respect for our clients’ needs have worked for us and the end result is out there for everyone to see.
You are an acute observer of people and trends. How do you absorb the nuances of life – the panorama of emotions, attitudes, quirks et al?
It’s a 24 x 7 job of observing and understanding people, seeing the changes they are going through. It’s not a research but observation of human life. Respect the surroundings and do not tell yourself that you know it all. You have to keep learning.
You have been at the fulcrum of advertising for more than three decades. Where does creativity go from here? How different are the creative guys of today from the earlier ones?
I don’t think creativity will ever change. The expressions may change, media may change, we may move from conventional media to new media, but the one who will succeed will be the one who will be more creative in doing it. This is because the new media will be available to everybody, but only the most creative will stand out. That’s the way I see life, which is ever changing and one has to keep pace with it. Values will never change and you’ll have to live with them. Certain expressions will change and you’ll have to learn them.
If medium is the message, how do you see the new platforms panning out in India?
I think all media will live together. I have always believed that in the next 10 years, conventional media is not going to get out of fashion, but new media will come in. Everyone has to be prepared to accept the change and yet not forget that we are not the best. Even the best has not changed that much. I mean, the talk about new media is a bit over-hyped to my mind. You have to keep pace with it. There is a new India which is lapping up the conventional media and you will have to keep a sense of balance between the two.
What’s the one accolade you are yearning for?
The only accolade that I really yearn for every day is that when I go to my barber shop, my barber tells me I saw your advertisement and I loved it. That personal connect is much more to me than anything else. On Tuesday night, there were 50 students who met me and said I loved your work. Now, they didn’t give me an award, but I think it was a bigger award than anything else that we got on the awards night.
At the end of the day, we are commercial artists and not artist artists. Otherwise, I would be happy painting things in my house while nobody else would be interested in them. I am paid to reach out to people and when people react to the work that we do, it is the greatest accolade and nothing can get any bigger than that.
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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.
