Godrej Prop readying Rs 700 crore rights issue

This story first appeared in DNA Money edition on Friday, May 10, 2013.

Godrej Properties is planning a Rs 700 crore rights issue to finance its existing and new projects across the country. While the pricing is yet to be decided, the company hopes to wrap up the issue by September. Pirojsha Godrej, managing director and CEO, Godrej Properties, said the board has approved the issue. “This issue will allow us to create necessary funding, thereby growing the portfolio very rapidly without requiring in any way to stretch our balance sheet,” he said. The company’s debt currently stands at a little under Rs 1,500 crore.

The company’s revenues in the January-March quarter of 2012-13 declined 16% to Rs 313.9 crore a year earlier. Operating profit slipped 1.56% on-year to Rs 100.4 crore though net profit grew 33.66% to Rs 53.2 crore. For the full 2012-13, revenues, bookings and net profit went up significantly by 28%, 71% and 41%, respectively, in comparison to fiscal 2012.

“Despite poor macro economic environment and relative underperformance of the real estate sector this year, our Ebitda increased 43%. In terms of bookings, we crossed $500 million in new sales,” said Godrej.

While the last fiscal saw the realtor pull off a total of 13 launches in six cities across the country, the management is confident of rolling out 15-20 new projects this fiscal. The new launches will include phases of existing projects.

Godrej said the company registered good traction in major target markets of NCR-Gurgaon (Summit), Mumbai (Platinum at Vikhroli) and Bangalore this fiscal. “At Vikhroli, we increased prices by around 40% year on year despite the market not being that strong. We sold about 400,000 sq ft during the year at E City Bangalore. Around 1 million sq ft of sales were made at the Gurgaon project in a single day,” said Godrej, who sees prices sustaining due to inflation and rising input costs for real estate companies.

Glenmark sees sales growth slowing to 20%

This story first appeared in DNA Money edition on Thursday, May 9, 2013.

Glenmark Pharma sees its overall sales growing at a slower 20% this fiscal from the 38% pace logged in the last fiscal on account slowdown in India and delay in US drug approvals.

Glenn Saldanha, chairman and managing director, Glenmark, said the guidance for India business, too, is 18-20%.

“There is a slowdown in the India business and the IMF data for the last 4-5 months is very bad for the industry as a whole. In this environment we think an 18-20% growth number is doable because we are also adding OTC (over-the-counter), generic components and anti-diabetes drugs (Zita and Zita-Met) to these numbers, which will be significant contributors,” Saldanha on an earnings call.

Analysts said the growth guidance is in line with the projections.

Manoj Garg, pharma analyst, Edelweiss Securities, said, “If the company is anticipating 18-20% growth despite high research and development (R&D) expenditure, it’s a reasonably fair guidance. The current over 35% growth is not sustainable given the base is likely to increase coupled with slowdown in the market.”

The company said that its R&D expenditure this fiscal would be about 8.5% of net sales. While innovative R&D will see normal increase, the increase in absolute R&D spend is primarily towards the US business. The management has also earmarked capex of Rs 250 crore for the current fiscal.

Glenmark’s operating profit, excluding out-licensing income, is expected to be Rs 1,225 crore. The company expects net debt-to-Ebitda ratio to improve further this fiscal from the current 2.12. Its net debt currently stands at around Rs 2,000 crore.

The focus, the company said, will be to reduce debt from free cash with more significant merger and acquisition plans this financial year.

“We are very confident about bringing down the absolute debt number this year onwards. Free cash generation should start to be pretty substantial, going forward,” said Saldanha.

For the US business, Glenmark is expecting a more or less similar growth of 18% this fiscal, citing poor visibility and timing of US Food and Drug Administration (FDA) approvals.

“The next few years should be much better because of the filing grade and the product pipeline.

We should see better growth in the subsequent two years wherein we can expect over 25% CAGR from the US business,” Saldanha said.

Terrance Coughlin, CEO, Glenmark Generics Inc, US, said the industry as a whole is seeing a slowdown in approvals.

“For fiscal 2014, we anticipate 8-12 approvals in oral contraceptives, dermatology products and immediate release products.

Glenmark’s US pipeline comprises 53 abbrievated new drug applications (Anda) that fall into a less competitive landscape and the company is targeting to file another 20 this fiscal. “Of the total filings, 50-75% are in the niche category. We continue to focus on dermatology (derma) and oral contraceptive,” Coughlin said.

Turnaround in AC sales keeps pace with summer heat

My colleague Nupur Anand co-authored this story first appearing in DNA Money edition on Wednesday, May 8, 2013.

Makers of air conditioners (ACs) are rejoicing as sales are zooming up, thanks to the scorching summer, unlike last year when the market de-grew 26% on-year in the January-April period.

The residential AC market alone sees sales of up to 3.5 million units annually. Dealers and manufacturers said the overall AC market is growing by about 10-12% on-year this year. They attribute the turnaround to stable prices.

Mahesh Krishnan, vice-president (consumer electronics), Samsung India, said that unlike last year, prices have remained stable this year, boosting sales. “Last year, the rupee had depreciated almost 4% and this had led to a 10-15%  increase in prices, affecting demand.”

Saurabh Baisakhia, business head-AC, LG India, agreed that demand has improved. He expects it to stay strong. “Demand for LG ACs has improved by 20% on-year. Consumers are buying more energy-efficient products. So, the 4- and 5-star ACs are selling faster.”

Sanjay Mahajan, vice president-sales and marketing, Carrier Midea India, said energy-savers, though 15-25% more expensive than regular models, are viewed as ‘value for money’ by Indian consumers. For example, a typical 1.5 tonne, 3-star AC costs up to Rs 32,000, while a 5-star product could retail for Rs 37,000.

Consumers’ preference is also shifting from window ACs to split ACs. A Navi Mumbai consumer says he invested around Rs 30,000 last week on a 5-star split AC because he wanted his pet dog Toffee, an English cocker spaniel, too, to stay cool. “Heat this summer is almost unbearable. The split aircon now serves both my bedroom and the living room where Toffee relaxes.”

Krishnan of Samsung said that in south India, split ACs now account for over 90% of sales. In contrast, the window AC market has hardly seen any growth over the last few years, industry observers said.  Shifting sales are forcing AC-makers to rethink their strategies. Some are either lowering or discontinuing production of window ACs. However, industry experts believe that most AC-makers will wait for at least one more year before withdrawing from this segment altogether.

Ramesh Shah, MD of Sony Mony Electronics, a retail chain, says that easy financing options and value add-ons like free installation are also driving sales. With foreign exchange and raw material costs remaining stable, the AC industry is expected to grow by 15% this fiscal, say experts.

Consumer cos step up rural push as polls loom

This story first appeared in DNA Money edition on Tuesday, May 7, 2013.

Consumer goods companies such as GlaxoSmithKline Consumer Healthcare, Bajaj Corp and Dabur, which cater to the $13.1 billion (Rs71,000 crore) national market, are sharpening focus on rural distribution in anticipation of higher spends.

Factors like this being a pre-general election fiscal year, expectation of normal monsoon and government initiatives like high minimum support price for agricultural produce, aimed at passing on subsidies to rural India, are all expected to increase disposable incomes and hence spends in the hinterland, which accounts for 67% (or Rs47,150 crore) of FMCG sales.

According to Ramakrishnan Subramanian, director-finance, GlaxoSmithKline Consumer, demand and response from the rural market are up. “We are targeting to reach 10,000 villages this fiscal. Our intention is to reach 50,000 villages by 2016,” he told an earnings call.

According to ruralmarketing.org, India has 6.27 lakh villages in all; and business in rural India grew about 11% on average annually over the last decade. FMCG sales are expected to grow toward $33 billion by 2015, of which $22.1 billion will be contributed by rural areas.

Harminder Sahni, founder and MD of Wazir Advisors, said, “Tractor sales last quarter were good, indicating strong rural spend. This is driving consumer goods companies to go after the rural consumers in a focused manner.”

Specialist firms are helping consumer goods makers in this regard. For instance, Mumbai-based RW Promotions works with a host of consumer goods companies in covering 2-3 villages on a daily basis.

S Venkatesh, director, RW Promotions, said, “The rural distribution push is all about tapping aspirations. As a result, pack sizes and prices are being tweaked to make the products more attractive and affordable for villagers. Though market response varies from product to product, sales every day average upwards of Rs3,000 per village.”

Distribution, therefore, has emerged as a key driver of demand. For instance, Bajaj Corp, maker of haircare products, has been driving rural distribution through van operations in states where its enjoys a high market share.

“We have close to 150 vans covering 9,000 villages on a monthly basis,” said Sumit Malhotra, MD of Bajaj Corp. The ‘drive’ has helped deepen the penetration of Bajaj Almond Drops hair oil to 27 lakh retail outlets across India. “Almost 40% of our value sales are coming from rural markets,” he said.

After creating a strong distribution network last year, Dabur India, maker of fruit juices, wellness products, oral, skin and haircare, initiated ‘Project Double’ wherein it not only doubled its direct reach from 14,865 villages to 30,091 but also improved the quality of coverage.

This meant that even villages with a population of no more than 3,000 each across ten states, representing 72-75% of the rural FMCG potential, now have access to Dabur products.

British healthcare firms eye India opportunities

This story first appeared in DNA Money edition on Saturday, May 4, 2013.

A high-powered British delegation, comprising Kenneth Clarke, senior British Cabinet minister and the prime minister’s trade envoy for healthcare, is headed for India to explore ways and means of working together in healthcare and allied space. They will be in Mumbai and Chennai on May 6-7, 2013. 

In all, there will be 23 companies, including London Ambulance Service, Serco, TPP, Royal Free Hospital, BMJ, King’s College Hospital and Healthcare UK, and 30 delegates accompanying Clarke.

“Some of the prominent British companies are now being drawn to India to return the favour in kind. As a result of the National Health Service (NHS), people in Britain have some of the fastest access to general practitioners (GPs) in the world, the best coordinated care, and they suffer from the fewest medical errors,” he said.

In Mumbai, Clarke and the delegation are slated to meet state health minister Suresh Shetty and health ministry officials. They will also visit some of the prominent healthcare establishments viz. Healthspring and Global Hospitals. The Mumbai visit, in fact, is a build-up to the British PM David Cameron’s India visit earlier in February.

Despite offers, residential sales stay sluggish

This story first appeared in DNA Money edition on Saturday, May 4, 2013.

The residential real estate sector in India continues to witness a lull despite discounts and schemes on offer by developers.

Sales in Mumbai Metropolitan Region (MMR) grew a mere 1% to 10.45 million square feet in January-March quarter from 10.3 msf in the preceding quarter, while they declined in Hyderabad and Pune, according to Liases Foras Real Estate Rating & Research.

Only National Capital Region (NCR) and Chennai markets saw 24% and 36% rise in sales, respectively.

Pankaj Kapoor, managing director, Liases Foras, said, “Residential sales in Bangalore and Pune decline by 16% and 7%, respectively, while Hyderabad presented a gloomy picture with sales plunging 46% sequentially.”

Housing prices rose across cities, with the highest increase seen in Bangalore at 6% to Rs 5,004 in Q4 over the preceding quarter.

The Mumbai market saw price gain of 3%.

Pune and Bangalore markets suffered mainly due to escalation in prices.

The sluggish IT industry in these markets indicated the private equity investments, cash-out deals and high land valuations were the main reasons for price rise.

On the whole, the price of new supply was lower than that of existing supply.

While the Mumbai market saw maximum number of launches, NCR, Pune, Hyderabad and Bangalore showed significant shrinkage in their numbers.

“Maximum new supply in MMR is in the cost range of Rs 1-2 crore and it is affordable housing that led the pack in NCR. Other markets saw a mix of budget and affordable housing in terms of new supply,” Kapoor said.

“With unabated price rises and limited launches this quarter, it remains to be seen whether the cash strapped developers are successful in selling out their existing unsold stock with the prevalent schemes and waivers. The lowering of interest rates would also prove to be a boon in the long run,” said Kapoor.

While inventories declined in Chennai and NCR markets, Hyderabad painted a dismal picture with inventories at 49 months compared with 23 in the preceding quarter.

GlaxoSmithKline Consumer Healthcare steps up capex plan

This story first appeared in DNA Money edition on Friday, May 3, 2013.

GlaxoSmithKline Consumer Healthcare is significantly stepping up its capex as it plans to spend this fiscal the combined amount it spent in the last three years.

“Money will be spent on balancing equipment at some our factories at Nabha, Rajahmundry and Sonepat, thereby increasing throughput there. Then we have various cost engineering projects in addition to acquiring office space to house new employees,” Ramakrishnan Subramanian, director-finance, said on an earnings call.

For the first quarter of this fiscal, GSK reported a 20% year-on-year increase in net profit at Rs 156.41 crore, while sales rose 16% to 975.38 crore. GSK in the last three years spent around Rs 250 crore towards capex, including for a plant in Sonepat, Haryana.

“This year again we have a Rs 250 crore plan because of a lot of other things, including the office which is a huge expenditure for the company,” said another official.

The company would add more outlets to its distribution reach of 8 lakh outlets this year and focus on rural markets. “Our intention is to reach 50,000 villages by 2016,” said Subramanian.

With competition getting aggressive and doling out heavy discounts, GSK has adopted a different approach to tackle the situation. “We are focusing more on brand building activities coupled with introduction of premium products,” said Subramanian.

Cabinet clears Phase-III FM radio auction

My colleague Priyanka Sahay co-authored this story appearing in DNA Money edition on Thursday, May 2, 2013.

The Cabinet on Wednesday approved the empowered group of ministers' (EGoM's) decision to e-auction 839 FM radio channels in 294 cities through private agencies. This ends the over two-year-long wait for the third phase of expansion of the private FM radio network (FM-3) in the country. The new FM radio frequencies will be opened for cities with a population of above one lakh. Currently, 86 cities are covered by FM radio services.

Wednesday's decision is part of amendments to the policy guidelines for the third phase of FM expansion, said finance minister P Chidambaram.

The migration fee, to be decided after consultations with telecom regulator Trai, will be charged from existing operators upon their migration from Phase-II to Phase-III. The specific departures from the Request for Proposals (RFP) format followed by the Department of Telecommunications (DoT) for auction of 3G and broadband wireless access spectrum proposed by the EGoM — circulated as annexure to the agenda note — for the FM radio auction were also approved with some amendments.

It has also been decided that the additional channels that may become available due to a reduction in the inter-channel spacing to 400 KHz from 800 KHz earlier could be considered subsequently, after feasibility studies are completed.

FM radio players hailed the Cabinet decision.

"We are looking forward to a fair and transparent e-auction. Our investment decisions will be driven by payback and IRR (internal rate of return) and the future projected growth of key markets," said Tarun Katial, CEO, Reliance Broadcast Network Ltd, whose '92.7 Big FM' radio reaches 45 cities and over 1,200 towns.

Apurva Purohit, CEO, Music Broadcast (RadioCity 91.1), was also gung-ho. "Being a pan-India player, we will certainly be looking to expand our footprint," she said.

Purohit, in fact, said her company has already worked out details like investment during the bidding process and capital expenditure. "We are a debt-free company with strong backing of financial institutions and private equity investors."

Similarly, 94.3 MY FM officials said they are ready for the e-auctions. Their focus will be only on Tier II and Tier III towns where the company already has a presence through its print business. "Being part of D B Corp which has an impressive cash balance, we should be able to meet the capex requirement through internal accruals," said an official.

In order to prevent monopoly, no group will be allowed to have more than 15% of all the channels, except in the North-East, Jammu and Kashmir and some Union Territories.

Uday Kumar Varma, secretary to the information and broadcasting ministry, had said earlier that the government will earn a revenue of Rs 1,500 crore from the e-auction which is expected to be completed in one year.

A CII-Ernst & Young report said earlier this year that the FM radio segment is expected to grow by Rs 2,300 crore at a compounded annual growth rate of 18% within three years after Phase-III.

Cyrus P Mistry gets a younger council to helm Tata Sons

This story first appeared in DNA Money edition on Wednesday, May 1, 2013.

In the first major organisational restructuring since Cyrus P Mistry took the reins, Tata Sons, the holding firm of the over-$100 billion salt-to-software Tata Group, on Tuesday announced the formation of a group executive council (GEC), which will provide strategic and operational support to the chairman.

The GEC, set up under the aegis of the Tata Sons board, will assume the roles and responsibilities earlier performed by the group corporate centre (GCC) and group executive office (GEO) and will report directly to Mistry, the company said in a release.

It would be chaired by Mistry and comprise top executives of the group, including the newly appointed group chief human resources officer N S Rajan effective May 9.

Rajan replaces Satish Pradhan, who was earlier the executive vice-president in charge of group human resources at Tata Sons.

Among the initial members of the GEC are Mukund Govind Rajan, who will oversee brand, communication, ethics and corporate social responsibility and Madhu Kannan, who will head business development and public affairs.

“Other appointees to the GEC will be announced in due course,” the release said.

The GEC members will be assigned responsibilities by the chairman to lead various strategic functions, besides serving as nominees of Tata Sons on the boards of group companies.

The agenda of the GEC, Tata Sons said in the release, will include, “return on investment with a long-term perspective; support for and shaping of the agenda for philanthropy; preserving and enhancing the reputation of the Tata name; defining and driving a Tata way of working for group companies; and playing a proactive role so that the group fulfils its responsibility as a global corporate citizen”.

The move brings down the average age of the advisory council by around 20 years, said experts.

“The new council comprises younger professionals who are very much his age. Besides being talented, the new council members are of a different mindset, will bring in fresh thoughts and are more in tune with the way the new Tata Sons chairman would like to seek advice,” said Gita Piramal, business historian and author of Business Maharajas. She described the move as “standard procedure” in  large corporate houses every time there is a change at the top-most management position.

Comparing Mistry’s approach with that of Ratan Tata’s, Piramal said Tata had inherited a less cohesive group. “Over the decades that he was head of the group, the first part went in welding it together,” she said.

In comparison, Aditya Birla inherited a very cohesive group and he brought in people of his age, said Piramal. “Kumar Birla inherited at a time when the group was in the execution stage because a lot of new projects were initiated and then unfortunately Aditya Birla passed away. At that juncture, Kumar Birla brought in a few people but he kept the old people to ensure smooth flow of the already commissioned projects,” she said.

“So I’d say Cyrus Mistry is where Aditya Birla was.”

How Tata Group is harnessing the innovation within

This story first appeared in DNA Money edition on April 29, 2013.

Last year, Tanishq, the jewellery arm of Titan Industries, was faced with a daunting task. It wanted to ramp up capacity for making gold coins using powder metallurgy technology. But an intermediate step in the process posed a roadblock – removing moisture from gold powder.

The process typically took 16 hours because of the type of furnaces used in the gold industry. To ramp up capacity, Tanishq would have to either set up more furnaces or look for an alternative method to really speed up the process.

It posted the challenge on Tata InnoVerse, the Tata Group’s in-house networking platform, created by the Tata Group Innovation Forum (TGIF), which was instituted in 2007 under the umbrella of Tata Quality Management Services (TQMS).

“The solution came (within the 40-day window offered for responses) from a manager at Tata Housing who, using his experience in the pharmaceutical industry, suggested using fluid bed dryers,” says Mukund Govind Rajan, brand custodian and chief ethics officer, Tata Sons.

The drying time is down to barely an hour today. “That’s an example of how the process works and the value of creating this kind of platform,” says  Rajan.

Another interesting idea came from a young employee at Tata Teleservices, who questioned the need for going to an optician for eye-testing as against doing it sitting at home.

“It was a great idea, resulting in the creation of an internet-based method for eye-testing. The idea has travelled from being a concept to final implementation in the last 12 months,” says Ravi Arora, vice-president, innovation, TQMS, Tata Sons. Going by him, some 4 lakh people are using the online testing methodology already.

Harnessing such innovative ideas across Tata group companies is Tata InnoVerse. In the last three years, the platform has generated 33,500 ideas, of which 1,976 were selected and 265 eventually implemented.

Going by Rajan, a good 42% of the ideas of Tata InnoVerse came from outside the Tata company concerned, “which clearly indicates the way collaborations across the group are really finding ways.”

The second vehicle TGIF created last year is a bi-annual programme called Challenges Worth Solving (CWS), which was piloted last year and is in its first year of  implementation.

According to Sunil Sinha, chief - group quality management services, Tata Sons, a focused group of top management across Tata companies is involved in identification of challenges and selecting the solutions. “This year, 28 challenges were posted on CWS by senior Tata leadership. These generated 3,764 ideas, of which, eventually, 25 were selected for implementation,” says Sinha.

To be sure, chairman Cyrus Mistry has harped on innovation – besides customer centricity – as a means to differentiation in the market place.

The group currently spends a little over $2 billion (Rs 11,000 crore), or 2% of its total revenues, on research and development (R&D). While it hopes to increase its R&D spend in the coming year, a lot of focus will also be laid on identification and optimisation of the big impact ideas for the benefit of the company.

“In the first 3-4 years, we looked at numbers because we wanted people to think creatively. The numbers have significantly increased from 100-odd in 2007 to almost 3,000 entries in 2013. Now the time has come to look at the quality of innovation/ ideas that can have a greater impact,” says Sinha