DTH and theatrical release of Kamal Hassan’s Vishwaroopam delayed

Actor producer Kamal Hassan's much awaited block buster film Vishwaroopam will not make it the television screens or for that matter the theatres and multiplexes on the scheduled date of its release.

A landmark development for the Indian film industry, Kamal Hassan had decided to premier his Rs 95-crore venture through DTH before its release in wide screens. The film was to be shown on the direct to home (DTH) platform on January 10, 2013 i.e. a day before its theatrical release on January 11, 2013. The DTH viewers would have had to pay Rs 1,000 for the Tamil version while it was Rs 500 for the Telugu and Hindi versions.

However, it so appears that Rajkamal films has failed to garner enough support from the multiplex / theatre fraternity that has been opposing the film’s DTH release.

Rajkamal Films’ media representative Nikhil Murugan did not respond to calls made on his cell number for an official confirmation.

The DTH players including the likes of Airtel Digitel, DishTV, Tata Sky etc. have however, already stopped taking bookings for the screening of Vishwaroopam on their respective networks.

Shashi Arora, CEO - DTH / Media, Bharti Airtel, said, “In-line with the postponement of the release date of the movie Vishwaroopam (Tamil & Telegu) / Vishwaroop (Hindi) across theaters and on the DTH platform by Rajkamal Films, we have stopped taking bookings for the movie premiere that was scheduled for January 10, 2013 at 9.30pm on Airtel DTH. The interest of our customers is paramount for us and regret the inconvenience caused to them. We are awaiting confirmation from Rajkamal Films on the revised dates.”

A Tamil-Hindi bilingual Indian spy thriller film written, directed and co-produced by Kamal Haasan that features Hassan in the lead role, Vishwaroopam also has Rahul Bose, Andrea Jeremiah and Jaideep Ahlawat in supporting roles. 

The soundtrack is composed by Shankar-Ehsaan-Loy, with lyrics by Vairamuthu and Kamal Haasan for the Tamil and Javed Akhtar for the Hindi versions respectively. The film was shot with the same cast in both languages simultaneously, and is titled in Hindi as Vishwaroop. 

It is the first Indian film, and second world film (after Red Tails) ever to be equipped with Auro 3D sound format.

According to Kamal Haasan the film is expected to earn Rs 350 crore (US$63.7 million).

For some hotels, green is the colour of bigger profit

This story first appeared in DNA Money edition on Monday, January 7, 2013.

Efficient eco-friendly practices have meant two Mumbai hotels – Meluha and Rodas, both located in Powai – save Rs1 crore and Rs29 lakh every year, respectively. Both are Ecotel-certified, a breed that’s increasing these days.

Ecotel is an environment certification administered by HVS, a hospitality-focused consulting and advisory firm. HVS claims Ecotel helps hotels enhance profits. By integrating efficient equipment and operating measures into standard business practices, Ecotel hotels enjoy reduced consumption of resources like energy and water; emissions and wastes, too, are lower.

Besides, some waste material is converted into wealth in the form of biogas. Despite initial costs, alternative energy resources like solar and windmills are encouraged. All this enhances overall performance, boosting both revenues and operations, says HVS.

Ecotel involves the entire value chain: owners, architects, operators, employees, suppliers and hotel guests. It even encompasses development of the local community. Hotels can apply for Ecotel at any stage of development, not just during construction.

Ecotel’s cost is Rs5 lakh, valid for two years. Later, hotels are re-certified (some for over ten years), provided they meet Ecotel standards and clear the property audit.

Ecotel, initially viewed as a mere marketing and branding exercise, has started gaining traction among hotel owners as the boost to profitability becomes clearer. “Fiscal benefits of operating sustainable hotels is becoming more and more known to the industry,” said Manav Thadani, chairman, HVS India.

The three upcoming Ecotel hotels will be operated under the Fern brand managed by Concept Hospitality, Asia’s largest operator of Ecotel-certified hotels.

According to Param Kannampilly, CMD of Concept, hotel asset owners are keen on Ecotel as it makes them stand out from the crowd. “Since the conversation on the environment has increased manifold, an increasing number of people want a differentiated product and want to do the right thing.”

What’s more, Ecotel norms increase the per-room cost by 10-15% at the most — something clients don’t mind paying. “A guest selects the hotel based on location and then brand. If an Ecotel hotel is in their location and if that facility and service quality are comparable, then most guests would opt to stay in an Ecotel hotel rather than a non-Ecotel hotel,” said Kannampilly. “At three years, the return on investment is much faster than non-Ecotel hotels.”

All the same, higher initial cost has kept the industry from adopting Ecotel, say experts. Vikram Vithal Kamat, executive director of Kamat Hotels, said building an Ecotel hotel is slightly expensive (10-12% higher) as there are restrictions on using certain types of building materials and refraining from using cheaper alternatives. “But while the capital outflow is on the higher side, asset owners tend to recover the cost faster because long-term maintenance cost is significantly minimised.”

Besides higher initial cost, increased construction cost, lack of knowledge on how to run an Ecotel hotel, lack of guidance on how to ace the intense scrutiny that precedes Ecotel certification are other reasons why hotel asset owners shied away from adopting Ecotel, industry observers said.

Media needs to be more than just a mirror of the society: Prasoon Joshi

An edited version of this story first appeared in DNA main edition on Monday, December 31, 2012.

Media is not only the mirror of the society, it also shapes the society. "While mirroring part is taken very seriously," feels Prasoon Joshi, president, McCann Worldgroup South Asia, "shaping is not and that's what I end up arguing with most media professionals including a few who are good friends."

Media, including the film and advertising fraternity, is often accused of commodifying women. There have been several instances of objectionable advertisements, portrayal of women in bad taste by a section of the fraternity. However, industry players feel putting everyone in the same basket is incorrect.

According to Joshi, such people exist in both the advertising and film fraternity. "You find all kinds of films, people and portrayals. Some people actually are very careful about it and would not try and objectify a women or unduly disrespect or degenerate her image. But at the same time there would be others who don't care and bother. As a result you see advertisements and films with objectionable content," said Joshi adding, it is for this reason there are various bodies to regulate such a mindset.

Media has been regarded as reflection of the society and mirror's what it sees across cultures in its communication and messages. While media has to be responsible and understand their limitations, it cannot hide facts. That said, Media also needs to follow certain rules, have a line of control, but some entities do go overboard in an attempt to play the TRP game.

"One tends to see a few instances of women being commoditised on television channels for high TRPs," said Raj Kamble, managing director, Strawberryfrog. "But the audience these days are smart enough and hence do not take them seriously. I can confidently say that a large section of media these days does a lot of sensible things and that's very commendable."

While there is no denying on media being the reflection of the society, is it really doing enough to bring in that much required a change? With atrocities happening time and again, is there a need for introspection in their approach to projecting women in a manner that instills a sense of confidence in addition to providing a safe and secure way of life for women in the country.

"Introspection is necessary anytime some atrocities happen. It should not be restricted only to the advertising and film fraternity but every other place, fraternity, discipline where there are women. They are all part of a society and media can not be singled out as the reason why this is happening or has happened," said Joshi.

Indian psyche, experts feel, is among the various reasons responsible for problems to occur. Nothing happens suddenly as it could be part of a larger consciousness of this country. "It's not as if the film makers in this era are responsible. To be fair, advertisements or films in the past have showcased women in a different light. You can go back and find things that are objectionable throughout," said a media professional.

What is it that can bring change then? The whole consciousness of the society needs to reject something which is objectionable, feels the media fraternity.

"One must understand that advertising or film is also a product. People should get conscious if there is something not acceptable and stop buying than looking upon it. No matter how much people consume pornography, people don't consume and accept it openly. If there is something that's objectionable to women, it should not be the decision of a few people of the society. A larger consciousness of the nation has to reject it," said Joshi.

He added, "When we talk about "dowry" or something like "sati", which is a thing of the past now, those are also part of our tradition and we have realised those are things we have to do away with. Larger consciousness of the society has rejected it and that is the approach really required today."

A section of the fraternity feels that advertising and films are about creating images and it would not be fair to single them out or hold responsible. "Media is a very easy target but there are many hidden layers in the society that are shaping this concept," said a media professional.

"If there is a fashion product and someone is walking the ramp, wearing a certain kind of dress and is very confident about herself, that is what needs to be looked at. Ye thodi ki, bori mein lapet ke aurat ko bitha dein... We have to respect her individuality, dreams and freedom of expression. If she wants to go out on her own she should be able to do that," he added.

Commenting on safety measures for girls/ women in various Indian cities, the fraternity is convinced that one cannot imagine a girl / women anywhere in the country saying that she wanted to watch a movie, bought the ticket and sat in the theatre all by herself. "Very rarely one would find a young girl alone in such public places. I hate people who say why did you go alone. What the hell? What are we talking about, what society are we talking about," said a top media professional with a leading advertising agency in Mumbai.

Secondly, in case of rape we have to remove one very important perception - that the women has been shamed. Why should she be shamed? It is the man who should be shamed. In fact the society should ostracise the rapist. Instead the rapist are celebrating and sitting in various powerful positions in the country. How can we let that happen? Everytime something like this happens, the victim has to go hide her face somewhere and the people who have done it are proudly roaming around in the society. Why such double standards?

"I consider today is a very positive phase because people like you and me are openly talking about it. It's a fact that people have never ever looked at rape so seriously in the past. That fact that people including media are asking questions, there is a sensitivity towards it, there is questioning attitude towards it. The fact that we are ready to introspect. I think it's a very positive sign," said Joshi.

Hyatt wants most preferred hotel tag across segments

This Q&A first appeared in DNA Money edition on Wednesday, Dec 26, 2012.

Ratnesh Verma

Ratnesh Verma, senior vice-president, real estate and development, Hyatt Hotels (Asia Pacific), is sure that the recently concluded unique management contract deal with IHHR Hospitality will be loaded with positives. He outlines what the growth engine looks like in India and much more. Edited excerpts:

What’s your growth strategy? How many hotels are you launching over the next two quarters?

Our growth strategy is not about planting in flags. We are not the largest hotel company and we don’t want to be one. Our objective is to be the most preferred hotel company across the segments we serve. Over the next six months, we are looking at opening some exciting hotels starting with Hyatt Regency hotels in Gurgaon and Ludhiana, Hyatt Place hotels in Hampi (opened last week) Pune, Bangalore, Andaz Gurgaon and Grand Hyatt Kochi.

You recently signed a deal with IHHR for introduction of Hyatt brand in India.

In fact, much before the IHHR deal, we’d already signed a Hyatt branded hotel in Raipur. This project is likely to get operational in another six months. The 110-room hotel is being developed by the Saraf’s – owners of Grand Hyatt Hotel and Residences at Vakola, Mumbai.

Is the IHHR deal uncommon in the Indian hospitality market?

It’s not entirely uncommon. In many situations, you do have owner-managed assets that are then managed by third-party specialist hotel companies. At some point in time, businesses reach a stage when they have to choose one option over the other. Promoters ask themselves if they want to be a hotel developer, owner or a hotel manager. Beyond a certain stage, from a scale point of view, the management requires a lot more investment of resources, time and commitment.

IHHR wants to continue being a hotel developer and focus on building assets.
So, the promoters have already identified their priorities. They also see a good fit with a company like Hyatt that will give their assets access to global distribution, marketing and brand equity in the country. Hopefully, we will be able to deliver a performance that would meet their expectations.

We are currently working with IHHR to go through some of the key changes that would then lead to branding of the hotels which we feel would be sometime between February and March 2013.

What changes are you likely to make to the Ista hotels’ portfolio?

I think the key changes are more from the operational point of view like plugging into the Hyatt point of sale (PoS) from a technology point of view. The collaterals will undergo changes as well. Most importantly, we are trying to incorporate changes that are customer touch related points because it is not just putting a name on the building but also delivering what the customer would expect from a Hyatt hotel. The Ista hotels will not undergo any structural change at all.

There are talks that the deal was done primarily to give Morgan Stanley (investor in IHHR) an exit?
 
I don’t think so. I have been dealing with key executives at IHHR, investors and the management team for over a year now. I can’t comment specifically on a market rumour, but what I can say is that they have been very unified and collective in driving this process.

Market sources also said Hyatt has invested $25 million for this deal.

Not at all. Hyatt is managing the hotels and we have no equity stake whatsoever in this transaction.

So, is Morgan Stanley still invested or does the London-based Bhanu Choudhrie’s C&C Alpha Group own a majority of IHHR Hospitality?
 
I am not sure if Morgan Stanley is still invested. There was some media report saying they have divested shareholding, but you’ll have to confirm it with them. The ownership structure is fairly spread with Choudhrie family as major shareholders.

Do future developments from IHHR automatically come to Hyatt with the signing of this agreement?

Our relationship with them is specific to the current portfolio of five hotels. As and when they build additional assets, we hope to be part of that development, but there is no understanding/guarantees from either side. Both Hyatt and IHHR will have to look at it on a case by case basis.

Travel companies rake it in as busy season comes good

This story first appeared in DNA Money edition on Sunday, December 23, 2012.

Nothing, it appears, can spoil the Indian traveller's holiday right now – not high airfares, nor a weak local currency. Travel and tourism companies are witnessing significant traction (both offline and online) for booking flight tickets, hotels, holiday packages and other allied services.

So much so, between October and December, the business may have grown a quarter over the corresponding period last year. "These are the peak travel months and business has been good both for domestic and outbound travel. The industry has grown by over 25% and packaged holidays have grown around 23%,\" said Arup Sen, director - special projects, Cox & Kings.

Within the overall business, the domestic holiday segment grew significantly higher than international. This, despite the airfare for domestic destinations witnessing substantial increase due to reduction in the number of flights.

Pratik Mazumder, head - marketing, Yatra.com, said travel portals have seen tremendous growth in the holiday business. "Over last year, our domestic business has seen more than 250% growth and the international outbound business more than 150% growth.”

As for international holidays, industry players said the depreciating rupee made foreign destinations more expensive for travellers this year. Movement in currency exchange rate affects the cost of holiday on the whole as hotel, accommodation, air tickets and visa charges fluctuate depending on the prevailing exchange rate.

"However," said Vishal Suri, deputy COO - tour operating, Kuoni India, "This led Indian travellers to identify alternative holiday options within their budget. A substantial number of travellers reduced the duration of their holidays and opted for shorter vacations. Budget travellers explored domestic holiday destinations. Weekend packages for destinations at drivable distances gained popularity."

Stimulating the demand for leisure travel, airlines had launched a 30-plus days Apex fares, offering 50% of their inventory at discounted rates. The strategy played well for the airlines, ensuring that over 40% of their seating capacity was booked well over 30 days in advance.

Noel Swain, executive vice president - supplier relations, Cleartrip, said, "The average pricing this year is 20-25% higher than what it was last year. The Apex fares bring the differential down to just about 10%. This gave customers a pricing advantage of 10-15% on airfares, which is a considerable benefit in terms of pricing for planning holidays in advance," said Swain.

"This year, people were smarter. They planned in advance and started booking early, since October, which is why we were sold out by early December. Besides, contrary to market perceptions that people would be cutting back on their travel spends, spends have increased considering average package costs are 10% higher than last year due to airport duties, taxes and higher hotel costs. Our standalone hotels business, where people are taking 'drivable distance' holidays, has also seen a nearly 100% growth," said Mazumder.

Industry players also indicated that average bookings (domestic air tickets) tend to decline marginally in December as most people are travelling between December 20 and January 5. However, the numbers are up marginally compared with November.

"Overall, there is a 4-5% increase in bookings compared with November and at Cleartrip, we have seen 13-15% increase over last year. On the hotel bookings front, the month-on-moth growth is about 35%. The numbers essentially mean there are a lot many people travelling in December this year compared with last year. This is a clear indication that December is going to be much better for the hotels and airline industries with very robust bookings through the Christmas week going past the new year," said Swain.

On the international front, Cleartrip has witnessed a 75% growth over last year. This is mainly because of increased capacity from low-cost carriers (Indigo, Spicejet) that launched multiple international destinations from India to the Middle East, SAARC and South East Asia, etc.

The focus is on free individual travellers, or FITs, who make up more than 65% of all international travel. "The FIT customers are the slightly evolved set of travellers who pretty much know what they want to do when in a particular destination and hence plan their own route and activities," said Suri.

DLF to sell Amanresorts in $300 m deal

This story first appeared in DNA Money edition on Thursday, December 20, 2012.

DLF, India’s largest realtor, has managed to sell its Amanresorts luxury hotel chain after scouting for a buyer for a long time. Five years after it bought the chain, DLF is selling Amanresorts back to its Indonesian founder Adrian Zecha for $300 million, or Rs 1,600 crore. The sale excludes Amanresorts’ flagship Lodhi Hotel in Delhi, which will be retained by the developer.

Under the deal, Zecha will acquire DLF’s 100% stake in Silverlink Resorts Ltd, the holding company for Amanresorts. However, it is unclear whether Zecha will partner with any investor for the transaction.

Sriram Khattar, senior executive director, DLF, said that Goldman Sachs and Citi Bank were appointed six months ago to find buyers. “Many were approached and I am happy that the portfolio is going back to the company’s founder,” he said. The deal is slated to be closed by February and a significant part of the proceeds would be used to cut debt.

DLF had acquired a 97% stake in Amanresorts, which had about 25 properties across the world, in November 2007 for $400 million or Rs 1,580 crore at the then exchange rate of Rs 39.80 for $1. The stake was raised to 100% later.
While the company was said to looking to sell the chain for over $350 million, experts said $300 million was a decent valuation.

“One needs to also consider that Lodhi Hotel is not part of the sale besides exchange rate in 2007 was much lower. The deal is to conclude next year in February so we’ll have to consider the exchange rate at that point in time,” said a top hospitality consultant.

Another industry source said, “While the present book value of Lodhi Hotel could be over $80 million, its market value is 2-3 times the book value. So if you add that to the $300 million valuation I think DLF has a very good deal.”

Analysts said the Amanresorts deal was is line with the company’s divestment guidance for the current fiscal. “The transaction is significantly positive for the stock. We value DLF’s hotel assets (including the New Delhi property) at Rs 1,970 crore, said Aashiesh Agarwaal, analyst with Edelweiss Research, in a note on the company.

The deal is also in line with the DLF’s target to bring down debt to Rs 18,500 crore this fiscal from Rs 21,200 crore. “We’d given guidance that strategic non-core asset divestments will bring Rs 5,000 crore, which will be achieved by the end of this year,” said Khattar.

With this deal, the company has sold Rs 4,750 crore of assets this fiscal.
“Further divestment in wind power business, which is in advance stages of negotiations, is expected to generate another Rs 900 crore,” said Agarwaal of Edelweiss.

‘2013 looks promising for Bollywood’

Komal Nahta

An edited version of this Q&A first appeared in DNA Money edition on Friday, December 28, 2012.

Year 2012 saw 163 Hindi films being released with the industry clocking net box office revenues of over Rs2,000 crore. Komal Nahta, noted film trade analyst discusses how the year has been for the industry, highlights and trends. Edited excerpts...

Could you briefly tell us how the calendar year 2012 has been for bollywood? What were the key highlights?

It's been a very good 12 months for the trade this time around. Although the success percentage (anything between 18% -  22%) of films that worked on the box office wasn't any different from the last few years, the differentiating factor this time around was that a lot of films did huge business. Nine films including the likes of Ek Tha Tiger, Rowdy Rathore, Agneepath, Barfi, Son of Sardar, Bol Bachchan, Housefull 2, Jab Tak Hai Jaan and the latest being Dabangg 2 registered net box office revenues of over Rs 100 crore with Ek Tha Tiger being the top grosser of the year at Rs 199 crore.

Secondly, all kinds of films worked be it comedy, horror, family drama, thriller, action etc did well at the box office. Interestingly, even women oriented films (Kahani starring Vidya Balan) that normally don't do well on the box office received huge praises, was acclaimed by the critics and the audience alike became a huge hit without a single recognisable face in the movie. Then there were some films with complete newcomers like Vicky Donor and Ishqzaade that became a big hit. So the audience appreciated every kind of a cinema in 2012 which was a good thing for bollywood.

What has really brought about this change in the audience?

In the last few years, film makers have realised that it is not just the stars who could get audience thronging to the theatres to watch a movie. While big stars could lure audience for one or two shows, the year 2012 has proved it is mainly the content of the film that is the main driver. As a result, each one has worked really hard on their scripts which is showing in terms of performance of their films at the box office.

While we have very often heard people saying scripts are the backbone of the films, a lot of producers and film makers would overlook this aspect when signing big stars because they somewhere felt huge starcast doesn't require a strong script. That mindset has changed big time. This apart, with so many channels mushrooming and the audience being exposed to world cinema sitting in their home, a taste for newer subjects has developed in a section of the audience which is big enough to make the film commercially viable.

With first few days from release deciding the fate of a movie, what kind of a change has that brought in the overall film making approach?

We have seen that trend getting stronger gradually as a result a section of the film makers have diverted their focus from the script and are focussing more on the promotion and marketing aspects. These film makers feel if they can hoodwink the public into coming into the cinemas for the first few days they have won the battle. It is easier to promote the film in the last 15-20 days than to work on the film's script for over 6-8 months. And you need to get a brainwave to get something new in the script while marketing is much easier. So 'apna kaam ho jaaega' attitude is certainly being noticed in some films.

Film marketing budgets would have shot up significantly in that case?

Absolutely. About three or four years ago, marketing budget for a big fils was in the Rs 4 - Rs 5 crore range. That number has increased to Rs 10-12 crore and even Rs 15 crore in case of really huge films.

We also saw films like Gangs of Wasseypur, Paan Singh Tomar etc. gaining huge traction. You think more such movies will get produced in the coming years?

Such movies getting acceptance in itself is really heartening because these movies would earlier get classified as 'art cinema' catering to a very small section of the audience. Today these movies are being released commercially all over the country in the smallest of the towns is a big change in the overall film consumption behaviour. In fact, 2013 will see another realistic movie titled Bhaag Milkha Bhaag featuring Farhan Akhtar and directed by Rakeysh Omprakash Mehra.

So 2013 is looking equally good or better?

It is looking good and we are hoping it will be much better than the year going by. A huge line of big films - not only actors but directors as well - are due for release. Prominent among them are Amir Khan's Dhoom 3, Shah Rukh Khan's Chennai Express, Hritik Roshan's Krrish 3, one movie each by Sohail Khan and Sajid Nadiadwala featuring Salman Khan, 4-5 releases by Akshay Kumar etc. so a host of big budget, big banner, big starcast films lined up. In fact, 2013 kick-starts with the big budget film Race 2, Kai Po Che! that are again content rich films.

Temasek snaps up 19.99% in Godrej Agrovet for Rs 572 crore

This story first appeared in DNA Money edition on Tuesday, December 18, 2012.

Singapore-based sovereign wealth fund Temasek will acquire 19.99% stake in Godrej Agrovet, a subsidiary of Godrej Industries, for Rs 572 crore.

The deal, which could well be the single largest alternative investment in the Indian FMCG space,values the company at Rs 2,860 crore.

Temasek will acquire the stake through a combination of primary and secondary market transactions, though Godrej did not give the exact size and other details of each of these, or of the investment firms looking to exit through this placement.

The primary component will be used to support Godrej Agrovet’s future expansion plans, the company said in a filing, without sharing details on the nature of the expansion it was planning.

A diversified agribusiness company with interests in animal feed, oil palm, agri-inputs and poultry, Godrej Agrovet had sales of Rs 2,460 crore last fiscal.
It has been a tremendous source of value creation for Godrej Industries, said Nadir Godrej, its chairman. “It continues to be on a strong revenue and profit trajectory while delivering excellent returns on capital employed.”

The company has over the past few years aggressively expanded its rural distribution, increased manufacturing capacities and launched cutting-edge technologies for farmers.

“Partnering with Temasek will further accelerate our performance,” said Balram Singh Yadav, managing director, Godrej Agrovet.

Incidentally, this is Temasek’s second investment in the Godrej group this year – the investment firm had in January bought 4.9% stake in Godrej Consumer for $135 million.

Cement firms set for strong show on demand revival

This story first appeared in DNA Money edition on Tuesday, December 18, 2012.

Indian cement companies are set for a strong revival, driven by visible bottoming out of the industry’s capacity utilisation in the current fiscal and lower-than-expected capacity additions in the next two.

Analysts said for the first time in five years, capacity addition in fiscal 2014 is expected to be lower than the incremental demand.

Reema Verma Bhasin and Amit Rathi, analysts with Bank of America Merrill Lynch, said in the next fiscal the industry’s effective capacity utilisation will be flat on a year-on-year (yoy) basis at 71%, but is likely to rise to a sharp 76% in fiscal 2015 as demand grows.

“Compared with our earlier expectations, overcapacity is a tad higher this fiscal, but capacity pipeline for the next fiscal is sharply lower. Installed capacity growth in the fiscal 2015 is now estimated at 4% yoy versus 8% growth expected earlier,” the analysts said in recent report, adding that general elections scheduled in the next 18 months, too, could boost cement demand.

Indicating a cyclical upturn for the sector by the second half of fiscal 2014, Deutsche Bank analysts said that rising capacity utilisations and emerging logistical constraints could impede supply.

As a result, industry is likely to be more localised and would benefit all the players, they said.

“Those with upcoming capacities and a bigger presence in tight demand supply regions (UltraTech and Shree), such as western and northern India in particular, could see disproportionate benefits,” said Chockalingam Narayanan, Manish Saxena and Abhishek Puri, analysts, Deutsche Bank, in a sector update.

Cement prices pan-India have declined 5% during July-December against a 7% price rise in the same period last year, largely due to the Competition Commission of India’s (CCI) order on alleged cartelisation in June 2012.

An industry source said most cement companies have a prices decline Rs 25-30 per 50-kg bag in the last 4-5 months.

“The stress on cement prices will continue in the balance part of the current fiscal as well. The category A companies will be hit significantly due to pricing pressure from category B and C companies,” he said.

Analysts,however, see an increase in cement majors’ operating profit 25-50% in fiscals 2014 and 2015.

Holcim royalty won’t hit ACC, Ambuja much

This story first appeared in DNA Money edition on Tuesday, December 18, 2012.

Cement companies ACC and Ambuja may not face any major impact from the royalty payment to Swiss parent Holcim, with experts saying it would affect their profitability marginally.

Putting all speculations to end, the Boards of ACC and Ambuja have confirmed the payouts to Holcim with effect from January 1, 2013, to be presented to shareholders for consideration at the next annual general meetings.

The companies would shell out 1% of their net annual sales to Holcim as technology and know-how fees (read royalty). Experts, however, said the impact on profits would be well under 2%.

The announcement removes the overhang on both the stocks as investors have been awaiting clarity on the issue, they said.

Rajesh Kumar Ravi, analyst, Karvy Stock Broking, said the development will have a marginal impact on the profitability of both the companies if they are not able to pass on this cost.

“The increased royalty should increase cash outflow by 0.4-0.5% of net annual sales. This should lower ACC’s estimated calendar year 2013 earnings before interest, taxes, depreciation and amortisation (Ebitda) by 2% and profit after tax by 2.5%. Ambuja’s calender 2013 Ebitda and net profit would be lower by around 1.6%, if not completely passed through,” Ravi said.

For the first half ended September 30, ACC and Ambuja registered net annual sales of Rs5,638 crore and Rs5,199 crore, respectively.

Assuming the same figures for calendar 2013, the 1% technology and know-how fees for both companies works out to Rs 56.4 crore and Rs 52 crore, respectively.

A Morgan Stanley report in June had said that ACC and Ambuja were already paying 0.6-0.7% of net revenues to Holcim towards a few services such as training and technical consultancy.

Starting January, this expenditure will increase to 1% of net sales.

Raashi Chopra, analyst, Citi Research, said the proposed royalty is intended to bring the Indian subsidiaries more in line with the group practice and replace some of these payments.

“Thus, the negative effect of the royalty would be partly offset,” said Chopra in a recent report.

Though there was some confusion whether 1% was over and above the existing outflow, an ACC spokesperson confirmed that the technology and know-how fees is not over and above the existing expenditure being incurred by the company and will be inclusive.

“This, however, is lower than the level of 2% being indicated by various reports earlier,” said Ashish Jain, analyst with Morgan Stanley Research, in a recent report.