Phase 2 digitisation spoils seen in 3-4 months

This story first appeared in DNA Money edition on Monday, June 10, 2013.

Benefits of the Phase 2 cable television digitisation are seen accruing to the books of leading broadcasters, multi-system operators (MSO) and direct-to-home (DTH) service providers as early as next quarter.

“We see a higher likelihood of cable TV average revenue per user (Arpu) increase in the next 3-4 months as MSOs introduce direct billing systems and begin charging on a gross basis (versus net basis currently). This may lead to higher DTH tariffs as well, which are usually pegged to the cable TV Arpus,” Sachin Salgaonkar, Paras Mehta, Swosti Chatterjee and Piyush Mubayi, equity analysts at Goldman Sachs India, said in a note dated June 5.

According to the Ministry of Information and Broadcasting (I&B),  over 85% of digitisation has been achieved in the 38 cities post the Phase 2 digital addressable system (DAS) deadline of March 31. While 15 cities have achieved nearly 100%, 24 cities in all have achieved more than 75% and 34 cities have achieved more than 50% digitisation.

With Phase 2 digitisation nearing completion, the market has seen a higher degree of consumer awareness, which is likely to ensure a smooth transition to digital systems in Phase 3 and Phase 4 rollouts. However, DTH companies are set to see greater traction than digital cable in the balance phases as majority of the Phase 3 and 4 locations do not have sufficient digital cable infrastructure to ensure smooth service delivery.

The Goldman Sachs analysts have thus reiterated ‘buy’ on Dish TV, saying the DTH leader is expected to benefit from Arpu increases in the medium term.

The I&B ministry said in a statement in April that against the targeted 1.6 crore set-top boxes (STBs) in Phase 2 digitisation, 1.36 crore STBs have been installed by the MSOs and DTH operators. As of April, the total number of installed cable TV STBs stood at 91.5 lakh compared with 44.5 lakh for DTH operators.

Industry experts are of the view that while DTH/MSOs continue seeding of STBs, the MSOs are almost in the last leg of finalising commercial contracts with broadcasters and local cable operators. Also, the broadcasters are likely to benefit over the longer term as current DAS contracts are for shorter terms (12-18 months), leaving room to renegotiate on a per subscriber basis as and when seeding achieves completion and more subscribers are added.

The Goldman Sachs report quoted Zee top management (from March quarter earnings call) as saying, “subscription revenue during the quarter has been the highest ever and the digitisation rollout will only improve in the medium term...”

The bulk of the 25.6% growth in subscription revenues, Zee management had said, was from domestic subscription revenues. The broadcaster expects a larger part of the growth to unravel in the Phase 3 and Phase 4 of digitisation.

“We note that broadcasters like Zee saw revenue increase earlier than MSOs as they renewed contracts under DAS, whereas MSOs started seeing revenue uplift led by seeding of boxes and activation revenues from Phase 1 and 2 of digitisation. With MSOs launching DAS packages, we expect Arpus to increase their billing system under DAS leading to revenue uplift for DTH operators,” the Goldman Sachs analysts said.

Sanjay Goyal, chief financial officer, Siti Cable Networks, said in a March-quarter earnings call that major digital cable players were in concerted play to expand their reach on the ground. “DAS cities and towns are getting stabilised gradually and we are already seeing majority of the collections for the first 3-4 months starting to flow into the system. While pricing has been increased, we expect it getting reflected either in the month of June or July. Also, tier-based pricing (ranging from Rs 100 + taxes to Rs 267 + taxes) has been finalised, which will get implemented in the next few months,” he said.

Foreign retailers can't have franchise setup, says government

This story first appeared in DNA Money edition on Friday, Jun 7, 2013.

Foreign multi-brand retailers will not be allowed to take the franchise route for expansion in the country, the government announced on Thursday.

“Front-end stores set up by MBRT (multi-brand retail trading) entity will have to be company-owned and company-operated only,” the Department of Industrial Policy and Promotion said in a clarification issued to global retailers such as Walmart, Tesco and Carrefour.

Further, these retailers will have to set up new front-end stores rather than through acquisition of existing stores, the DIPP said. Nor can they use the e-commerce route to sell their ware.

Industry experts said the government hasn’t done anything more than just reiterating the policy and giving its stand on the same.

“They have upheld the primacy of the state governments, clarified that MBRT and wholesale activity will be kept distinct, investment in back-end infrastructure will have to be additional and greenfield, the back-end company must be held 100% by the foreign MBR, procurement of fresh produce has not been covered etc,” said Vivek Gupta, partner - mergers and acquisitions (M&A) practice, BMR Advisors.

That puts paid to the retailers’ hopes that the government will define back-end infrastructure anew and clarify on sharing of back-end infrastructure such as supply chain, warehouses and cold storages, he said.

Goldie Dhama, associate director – regulatory services, PwC, also rued the lack of any new announcement. While the government has made it clear that 50% investment in back-end infrastructure will need to be made afresh and that such back-end infrastructure can be set up anywhere in the country, “the stipulation that front-end stores will have to be set up new and not through acquisition of existing stores will impact M&A in the sector and ability of Indian retailers to attract FDI in their existing businesses”, he said.

“Some other aspects like restricting sourcing from small and medium enterprises only for retail business, inability of the company to undertake business-to-business trade or appoint franchisees, etc do not seem to be business friendly,” said Dhama.

Some see the stipulation that foreign retailers can only have company-owned and operated stores as an opportunity for the real estate sector.

“That’s one way of looking at it, but do we really have that kind of infrastructure to cater to the requirement of these very large foreign multi-brand retailers? Where will they find a 3-4 lakh square foot of retail space to exclusively house their MBR stores in India?” asked an official from an international consultancy.

Cadila launching new drug that lowers cholesterol in diabetic patients and helps in glycemic control

This story first appeared in DNA Money edition on Thursday, Jun 6, 2013.

Cadila Healthcare has announced the launch of the first new chemical entity (NCE) developed by an Indian pharmaceutical company — Lipaglyn — a drug that will help in lowering cholesterol in diabetic patients and in glycemic control.

The company expects the drug to be a blockbuster, garnering $1 billion in annual sales.

Pankaj R Patel, chairman and managing director, Zydus Cadila, said Lipaglyn is Cadila’s dream molecule to travel the lab-to-market drug discovery phases.
“We expect Lipaglyn to be a blockbuster drug reaching $1 billion in annual sales globally. While the pricing and distribution aspects are being currently worked out, we are looking to introduce it in India by third quarter of this fiscal,” said Patel.

The drug which has active ingredient Saroglitazar has been approved by the Drug Controller General of India. According to company officials, it is the first glitazar to be approved in the world and the first new chemical entity (NCE) discovered and developed indigenously by an Indian pharma company. Cadila will have a 20-year patent for Lipaglyn across the globe.

Lipaglyn is prescribed for Diabetic Dyslipidemia, a condition where diabetic has elevated levels of the total cholesterol.

Analysts, however, gave thumbs-down to the plan as they were expecting the company to out-license the molecule to a pharma MNC.

Ranjit Kapadia, senior vice-president - pharma, Centrum Broking, said, “Cadila would have received $10-15 million upfront payment if the management would have licenced the molecule to an MNC. Besides, the company will be marketing the product in India where patented products do not carry major premium as compared with Europe and US markets. As a result the upside is limited.”

Cadila officials said 1,000 clinical trials were conducted for the drug in India against 300 prescribed by the US Food and Drug Administration (FDA).
However, analysts said launching in India doesn’t mean much as clinical trials here are not as stringent as the developed markets.

“Standards of trials in India are not that great and it will be a long-drawn process to get it approved by the US FDA. A lot will also depend on the success of the molecule in the market,” said a pharma analyst from an international brokerage.

In India, the company expects Lipaglyn to be in the top 50 drugs in the segment with a targeted sales of Rs 100 crore in the next 3-5 years. Overseas, the company sees regulatory approvals in some emerging and developed markets coming in next 12-24 months.

“We will also initiate clinical trials for markets like Europe and US and have earmarked $150-200 million. We will look for a marketing partner for sales/distribution of this drug there,” said Ganesh Nayak, COO & ED, Cadila.

Cadila is also working on eight more molecules. It has thus far spent $250 million towards these developments, including Lipaglyn.

It will continue to spend 6-7% of its annual revenues on research and development apart from Rs 500 crore capital expenditure.

ZeeQ to bring back CBeebies

This story first appeared in DNA Money edition on Wednesday, Jun 5, 2013.

BBC Worldwide is set to re-enter the pre-school edutainment broadcasting in India. The main commercial arm and a wholly owned subsidiary of the British Broadcasting Corporation (BBC) has inked an agreement with Zee Group’s edutainment channel ZeeQ to broadcast content from its pre-school brand CBeebies.

ZeeQ is India’s only edutainment channel for kids in the age group of 4-14 years. On the other hand, CBeebies is a pre-school brand aimed at children aged six years and below.

Subhadarshi Tripathy, business head, ZeeQ, said the CBeebies content is very relevant for ZeeQ considering the channels also follow the same principals in selecting and producing content.

“The arrangement is not only getting the content on to our channel, but also having CBeebies as a band on ZeeQ,” said Tripathy.

The CBeebies brand will launch on the ZeeQ channel starting July 1, 2013. Currently, ZeeQ is available on Dish TV and Videocon d2h in addition to all the leading multi-system operators across the country.

Tripathy said that ZeeQ pays for the content with BBC Worldwide while handling the air-time sales. “This we will do in agreement with BBC Worldwide following a set of dos and don’ts as prescribed by them,” he said.

Myleeta Aga, senior vice-president and general manager - India and content head -  Asia, BBC Worldwide, said that partnering with ZeeQ brings CBeebies’ favourite programmes back to Indian TV screens.

“The CBeebies time band on ZeeQ is just the beginning of our partnership. We look forward to working with Zee to continue to bring popular and award-winning CBeebies programmes to ZeeQ,” said Aga.

Calling it a long-term association, ZeeQ officials said that this license agreement will see CBeebies programmes – Teletubbies, 3rd & Bird and Charlie and Lola – being aired on ZeeQ from Mondays to Thursdays for an hour (between 9:30 am and 10.30 am), with a two-hour repeat telecast on weekends (between 11.00 am  and 1.00 pm).

The association will help ZeeQ tap the pre-school segment (0-3 years) as well and strengthen its current portfolio of programmes.

The channel currently airs a mix of live action and animated shows. Some of its prominent shows include Teenovation, Science with BrainCafe, Amar Chitra Katha Heroes, Sid the Science Kid, The Weekly Wrap and Word Match.

Cement companies may hike prices this month

This story first appeared in DNA Money edition on Wednesday, Jun 5, 2013.

Cement firms may raise prices this month as the demand is showing signs of improvement and also because they are looking to gain a price edge ahead of the lean monsoon season.

“Discussions are happening on increasing prices by Rs 10-15 per bag. My sense is that cement companies would increase prices by Rs 10, if not more,” said an industry source requesting anonymity.

Cement firms have been unable to pass on rise in costs — railway freight charges rose last year (25% weighted average) and coal prices have gone up 10% — due to lacklustre demand.

Sudhir Bidkar, CFO, JK Lakshmi Cement, said prices in April were lower than the March quarter, but things improved post mid-May.

“We have been able to at least get back to the realisation levels witnessed in March, particularly from the middle of May. While sustaining it, we are also looking for signs of improvement in demand to be able to increase prices,” Bidkar said during the fourth-quarter earnings call last week.

Though Bidkar did not quantify the extent of price hike, he said it will only be possible if demand pick up.

“There have been various reasons — like shortage of labour and excessive heat — for not being able to increase cement prices. However, with labour now starting to come back, one can hope there will be a price increase to some extent in June,” said Bidkar.

Analysts said given that June to September is a lean season, cement companies generally increase prices before monsoon sets in. This approach helps them arrest decline in prices, giving them a bargaining window for monsoon sales.

“The peak season this year has been really bad for the sector with prices under considerable pressure owing to subdued demand. Sales in monsoon may get further fall leading to more pressure on pricing. The pre-monsoon price increase mainly helps in maintaining the price levels,” said an analyst with a domestic brokerage.

In fact, markets in south India like Andhra Pradesh, which saw the biggest price decline in April, saw price increases of Rs 10-30 per month, the analyst said.

Cement, unlike consumer products, has traditionally had its pricing based on expenses that are externally influenced.

“It’s totally a demand-supply driven market unless you influence it adversely through some changes either in demand supply or in costs. While there are cost pressures, at the same time it is not as though the seasons are behaving traditionally. And with monsoon approaching we should be getting into a lean season, but then this year has also sort of bucked the seasonal trend,” said an official from one of the top cement makers.

Dr Reddy's, Fujifilm call off alliance

This story first appeared in DNA Money edition on Tuesday, Jun 4, 2013.

Dr Reddy’s and Fujifilm have called off their partnership to tap the generic drugs market in Japan after almost two years of planning and market analysis.

The companies had in July 2011 inked a memorandum of understanding (MoU) with plans to seta joint venture for developing and manufacturing drugs in Japan and had even conducted studies on business aspects.

“However, as Fujifilm realigns its long-term growth strategy for the pharmaceutical business, both companies have led to a mutual agreement to terminate the MoU,” the companies said in a joint statement on Monday.

GV Prasad, chairman and CEO, Dr Reddy’s Laboratories, called it an unfortunate development. “However, I want to reinforce our commitment towards a planned entry into Japan to bring affordable and innovative drugs to more patients worldwide,” he said.

The companies will continue to explore partnerships in other pharmaceutical businesses, the statement said.

“In the long-term we will be focusing more on priority fields such as new drugs in cancer, more value-added super generic,” said Takatoshi Ishikawa, director corporate vice-president and general manager of pharma products division, Fujifilm.

Analysts made light of the development. “We haven’t changed our estimates on Dr Reddy’s given the JV does not contribute anything,” said Sarabjit Kour Nangra, VP-Research, Pharma, Angel Broking.

When Rakesh Jhunjhunwala grilled Aurobindo Pharma brass with some hard questions

This story first appeared in DNA Money edition on Monday, Jun 3, 2013.

It was a ‘rare’ occasion when Rakesh Jhunjhunwala, partner in asset management firm Rare Enterprise, logged into the fourth-quarter earnings call of Aurobindo Pharma on Friday. The multi-billionaire investor was raring to ask the company’s top management some hard questions and pounced on the opportunity as soon as the operator unmuted his line. Here’s what followed, verbatim:

Rakesh Jhunjhunwala (RJ): I’d like to know how much is your net foreign currency (dollar) receipts, considering you have a sale of Rs 5,800 crore, of which Rs 5,000 crore is from overseas markets. What are your expenses really like, out of this Rs 5,000 crore?

Robert Cunard (RC), CEO, Aurobindo USA: It may be in the range of $250-300 million... I mean exports minus imports and other expenditure in the foreign currency for the year as a whole.

RJ: Right. So what is your net foreign exchange receipts?

RC: In the range of $250-275 million, in import expenditure.

RJ: Import expenditure is about $300 million?

RC: No. Net foreign receipts in dollars is in the range of $250-275 million.

RJ: That means your gross receipts is Rs 5,000 crore, which is nearly $900 million, and you are incurring $600 million expenditure outside India?

(Pin-drop silence from the Aurobindo Pharma side for 15 seconds)

Sudhir Singhi (SS), CFO, Aurobindo Pharma: In that number, domestic sales worth Rs 1,493 crore is there as well.

RJ: Foreign sales is Rs 4,500...

SS: Yes, Rs 4,000 crore is exports sales.

RJ: Rs 4,000 crore is export sales, that means about $750 million.

SS: Rs 4,000 crore divided by 55... that is approximately $725 million.

RJ: Then your expenses is about $400 million?

SS: Sir, that includes the import of raw material for API, which could be a considerable number. This could be a couple of hundred million dollars.

RJ: But you are following I’m told... And, what is your debt in foreign exchange?

SS: Our debt in foreign exchange is approximately $600 million.

RJ: So, you don’t have a natural cover on the debt, no?

SS: No no... Sir, what happened, see, we don’t hedge it from the operations. We have a surplus of about $300 million for which we take for trade operations a working capital borrowing in foreign currency, which is approximately $330-340 million. So, as far as operations are concerned, we are fully hedged.

RJ: No no, but your debt is $700 million, no? What is your debt in foreign exchange?

SS: Yes, the remaining debt (term loan) is repayable somewhere in the years 16, 17, 18, 19 and 20, so we are having a natural hedge by growing exports over a period of time.

RJ: Therefore, are you dividing your forex debt into two parts – one which is payable in the near future or is a permanent debt or one which is payable after a certain period of time?

SS: Yes, we are dividing it into two parts. The debt which is falling (due for) maturity over a period of one year is considered to be sort of working capital or including working capital, short-term loan. If you see that portion, which is about $350-375 million including debt repayable within one year, against which we have an extra hedge, net from the trade operations, i.e. exports minus import...

RJ: Yes, I understand that. But then the balance $300 million debt which is payable over the next 4-5 years, how are you accounting for the loss in foreign exchange there? You are passing it through the profit and loss (P&L) account or capitalising it?

SS: No, we are not capitalising it. Whatever the loss is there – quarter end as well as year end – we restate and charge the difference to the P&L account. So this year, you see our loss on account of forex is being accounted in the P&L account.

RJ: That means if the dollar goes up, you are a net loser.

SS: We will be the loser on the restatement of the loss, notionally.

RJ: If you are charging it to the P&L account, that means today dollar has gone up from Rs 54 as of March 31 to Rs 56.5, so to that extent, on your one-year loan, your loss is covered. But for $300 million, you will have to provide it in the balance sheet.

SS: Yes, every one rupee depreciation on the dollar we would be losing on the restatement Rs 30 crore. For instance, from Rs 54 to Rs 56 today, we are losing Rs 2. As on date if we account for it in our P&L account, we will be the loser by Rs 60 crore.

RJ: On the entire debt?

SS: On the entire debt of $700 million.

RJ: You also have a choice wherein you can differentiate a long-term debt as short-term? Why don’t you charge the loss on long-term debt directly to your balance sheet?

SS: Because we have not exercised the option which the government has given – I recollect two years ago – so we decided as per the accounting standards in the
Institute of chartered accountants that we charge it to the P&L account.

RJ: But that’s not a true reflection of your profits, no?

SS: It isn’t, but please understand that we classify the portion of the forex as interest. So, our interest cost on foreign currency is only 3.75% and if you add the rupee depreciation that has happened, 6.7%, the interest cost would have been 9%, which is nothing, but if we could have taken loan in INR (rupee), our cost would be 9-10%.

RJ: What kind of sales growth are you expecting this fiscal?

N Govindarajan (NG), MD, Aurobindo Pharma: We are clear that it should be over 20%.

RJ: So, that will mean sales of around Rs 7,000 crore.

NG: Yes sir. It will be a little over that number.

RJ: What kind of a margin improvement are you indicating?

NG: We don’t talk about specific numbers, but I’ll put it that we are expecting a minimum improvement of 200-300 basis points in fiscal 2013-14.

RJ: Does cash flow on your budgeted profit allow for any debt repayment?

NG: Yes sir.

RJ: What’s your plan? How much debt do you want to repay?

SS: As we said, we have about $47.5 million loan coming for repayment, which we are confident of repaying in the current year and the rest will continue.

RJ: That means you are repaying $50 million this year?

SS: That’s right sir.

RJ: Ok sir. Thank you.

(Sigh of relief from Aurobindo officials)

Siti Cable sees subscriber base doubling by March

This story first appeared in DNA Money edition on Saturday, Jun 1, 2013.

Siti Cable Network, which reported a 352% year-on-year increase in consolidated operating profit for the fiscal 2013 to Rs 86.96 crore, is looking to double its subscriber base to six million in fiscal 2014.

Total revenue at the multi-system operator for the last fiscal increased 33% to Rs 483.66 crore.
V D Wadhwa, chief executive officer, Siti Cable, said, “We are planning to grow the subscriber base  over 100% this fiscal.”

The new subscribers will largely come from the cities under Phase II of digitisation in addition to some of the Phase III locations where the company enjoys monopoly.

The company also exceeded its target of touching 2.5 million subscribers, closing the last fiscal with an subscriber base of 3 million.

Wadhwa said the company has taken several key steps like providing own-your-customer (OYC) system, carriage revenue share, training for business partners and customer education to ensure smooth transition to the digital regime.

“We have made a conscious effort to align our people, processes and technological upgradation more closely with our business strategy, thereby giving ourselves the best chance to capture emerging opportunities in the industry especially broadband, value-added services (VAS), etc,” he said.

During the fiscal, the company consolidated its presence in the country by expanding in the central, western and eastern regions.

Sanjay Goyal, chief financial officer, Siti Cable, said there is concerted understanding among major digital cable players and everyone is working towards expanding their reach on the ground.

“Digital Addressable System (DAS) cities and towns are getting stabilised gradually and we are already seeing majority of the collections for the first three to four months starting to flow into the system. While pricing has been increased, we expect it getting reflected either in June or July. Also tier-based pricing (ranging from Rs 100 plus taxes to Rs 267 plus taxes) has been finalised, which will be implemented in the next few months,” he
said.

This apart, Siti is also pursuing expansion in the regions it is currently present through joint venture and partnerships.

The company has presence in 60 DAS cities, of which 20 have already been covered in Phase I and II.

The rest are in the subsequent phases of digitisation.

Of its overall revenue, close to 65% comes from carriage/bandwidth charges.

“This year, however, it has come down to 45%, and close to 20% is from set-top-box activation and the balance from subscription that grew almost 300% last fiscal, mainly due to DAS invoicing and collections being done in Phase I and II cities,” said Goyal.

Siti Cable currently enjoys an average revenue per user (Arpu) of Rs 104, net of local cable operator’s share of revenue.

The weighted Arpu, according to company, is Rs 175, of which 33% is shared with the local cable operator.

Orient-Express provision costs IHCL dear

An edited version of this story first appeared in DNA Money edition on Friday, May 31, 2013.

Tata group’s hospitality business, Indian Hotels Co Ltd (IHCL) reported a standalone loss of Rs 338.90 crore in the fourth quarter of fiscal 2013 (Q4FY13) against a profit of Rs 65.21 crore in the Jan-March quarter of FY12. The loss, company officials said, was largely on account of exceptional expenditure to the tune of Rs 424 crore on account of provisioning for some impairment in the value of investments in Orient-Express Hotels (OEH) and BJets Pte Ltd (a private air charter company).

According to Anil P Goel, executive director - finance, IHCL, impairments to the tune of Rs 373 crore in Orient-Express Hotels (Rs 305 cr) and BJets Pte Ltd (Rs 68 cr) have been recognised in the books. “We have an offshore subsidiary company called Taj Hong Kong through which we have a variety of important off-shore investments. What we have done is looked at value of IHCL’s investment in the subsidiary company and re-looked at the valuation of the underlying portfolio, compared the upside and downside and based on the calculations we have recognised the said investments in OEH and BJets,” said Goel.

In addition, the company has created a provision of Rs 27.55 crore, to satisfy the obligations of BJets Pte Ltd, an associate company, currently under restructuring. Another Rs 23 crore has been incurred towards the settlement of a dispute that was under arbitration for over 25 years.

As for company board’s final decision on OEH investment that was to be taken in March 13, Goel said that the board has not yet taken a call on the same.

The standalone turnover of the company for the year ended FY13 was Rs 1875.86 crore as against Rs 1808.73 crore in the previous year. Profit after financing cost but before exceptional item was Rs 223 crore as compared to Rs 236 crore.

IHCL said that isolating the impact of the extraordinary provision of Rs 424 crore, the profit after tax for the standalone company would stand at Rs 147 crore. However, on a consolidated basis, it would be a loss of Rs 7 crore as against profit of Rs 3 crore for the preceding year.

For the fourth quarter FY13, IHCL reported an almost flat turnover of Rs 556 crore as compare to Rs 560.15 crore in the corresponding quarter of the previous fiscal.

Company’s debt on books on a standalone basis stood at Rs 2,500 crore while on consolidated basis it is Rs 3,800 crore. The company received Rs 370 crore in the form of cash from promoters of which Rs 270 crore has been used to retire debt.

IHCL opened six hotels with 677 guestrooms in FY13 and the total tally currently stands at 119 hotels with 14,423 guestrooms as on March 31, 2013. The company will launch 21 hotels in the next two years with a total of 2,688 guestrooms across the country.

The capital expenditure in the next 18 months will be to the tune of Rs 200 crore for two greenfield Vivanta by Taj projects in Dwarka and Guwahati. This will be funded through internal accruals.

IHCL is also restructuring the shareholding of its 20-odd international assets housed in different subsidiaries. Goel said that IHCL wants to through an elegant structure shift all of it into one international entity.

"It will be one apex offshore company owned by IHCL, As a result of this exercise, the profile of those 20-odd assets becomes visible through one entity and effectively what it becomes is that the some of the parts become more valuable. We are moving in that direction to have that flexibility and in a perfect world I’d like to do it in the current fiscal," Goel said.

Also, IHCL managing director Raymond N Bickson's tenure with the company gets over in July 2013. when asked, Bickson said he will be applying for an extension.

Max calls off Rs 540 crore Speciality Films sale

An edited version of this story first appeared in DNA Money edition on Friday, May 31, 2013.

Max India founder and chairman Analjit Singh’s plans to raise Rs 540 crore by selling Max Speciality Films (MSF) has fallen through owing to valuation mis-match. MSF is in the business of manufacturing flexible polymer films for multitudinous applications in food, non food, and industrial packaging, leather coating films.

Confirming the development, Mohit Talwar, deputy managing director, Max India, said the speciality films’ sale deal has been called off. “The non-binding term sheet we’d got into for our plastics business is unfortunately not going through. There were valuations differences and this business has gone through a bit of a struggle given the market conditions as a result of which we did not go ahead with the transaction,” said Talwar.

In September 2012, Max India had said that the decision to sell MSF was is in line with the group's strategy to focus on service oriented businesses of life. The company board had then approved the proposal for sale of 100% equity to Treofan Germany GmbH & Co - a German global technology leader for biaxially oriented polypropylene (BOPP) film. Established in 1990, MSF had registered revenue of Rs 703 crore, a growth of 77% over its revenue in the previous fiscal i.e. FY11. Its earnings ebitda also witnessed an increase of 50% over previous fiscal to reach Rs 77 crore.

Talwar added that the speciality films business has enough tailwinds as a result the company has now decided to add another line. “An approval for the same has already been received from the board,” he said. The equity component for this business, according to Talwar, is not significant and the company management is working towards a situation where there are possibilities of going in for part or full monetisation through a strategic investor.

In another development, IFC Washington (existing investor in Max Healthcare) is set to increase its stake in Max Healthcare from the current 2.3% to 7.5%. IFC also holds some shares in the healthcare vertical.

According to Talwar, Max India has got into an understanding with IFC Washington for a partial conversion of the preference shares into equity. “This transaction places a value of Max Healthcare at about Rs 2000 crore of pre-money. What this really means is that it cleans up the balance sheet, improves debt-equity ratio and also brings in some amount of liquidity in the company. As a result of this transaction, our other joint venture partner (Life Healthcare) who gets diluted, will be topping up upto 26%,” said Talwar.