PVR Q1 net soars 79%

This story first appeared in DNA Money edition on Wednesday, July 31, 2013.

Multiplex chain operator PVR posted a 79% on-year increase in consolidated first quarter (Q1, April-June) net profit at Rs 13.9 crore driven by strong box-office sales, sale of  food and beverages (F&B) at its cinemas and revenue from on-screen advertisements.

Consolidated Q1 revenues were up 87% on-year at Rs 337.3 crore, while operating profit or Ebitda was up by 78% at Rs 61.4 crore.

Ajay Bijli, CMD of PVR, said integration of PVR and Cinemax is progressing well and the company management is focusing on drawing synergies from the combined scale of operations. This is already reflecting in PVR’s market share and financials.

The company’s film exhibition business showed a stellar Q1 growth on the back of strong same-store growth, addition of new multiplex properties as well as Cinemax multiplex circuit (post acquisition in January 2013). During Q1, PVR clocked 15.2 million footfalls at its cinemas, up  17% on-year.

Low volumes squeeze UltraTech Q1 profit 13.5%

This story first appeared in DNA Money edition on Tuesday, July 30, 2013.

UltraTech Cements, the country’s biggest cement producer, posted a 13.5% on-year decline in its first quarter (Q1, April-June) net profit at Rs 673 crore, due to slowdown in home building and infrastructure projects.

The Aditya Birla group company’s Q1 net sales fell 2.2% on-year to Rs 4,958 crore. Net turnover last fiscal rose 10% on-year to Rs 20,018 crore, while net profit stood at Rs 2,655 crore (Rs 2,446 crore the previous fiscal).

Kumar Mangalam Birla (pictured), chairman of the group, said business environment continues to be challenging. “Despite adverse market conditions, the company has done well. We foresee cement demand growth to be about 6% this fiscal. However, it is likely to be over 8% in the long term.”

Addressing shareholders at UltraTech’s 13th annual general meeting, Birla said last week’s Holcim-Ambuja-ACC will not intensify competition. For, Ambuja-ACC can together produce 58 million tonne per annum (mtpa) while UltraTech’s capacity is just a tad lower at 53.90 mtpa, including 3 mtpa overseas.

UltraTech’s CFO K C Birla said while April and May saw a 5.8% growth in demand, June saw only  around 1% growth.

UltraTech has earmarked Rs 13,700 crore for capital expenditure (capex) this fiscal, to be funded through internal accruals and debt in equal proportion. It also allocated Rs 2,100 crore for setting up grinding units, ready mix concrete plants and for modernisation. The company plans to increase cement manufacturing capacity by 10 million tonne to 64.45 million tonne by 2015.

Subscriptions, Arpu lift Dish TV revenues

This story first appeared in DNA Money edition on Saturday, July 27, 2013.

Dish TV, India’s leading direct-to-home (DTH) service provider, reported an 11.2% on-year increase in standalone operating revenues at Rs 578.4 crore for the first quarter as subscription revenues grew 15.9% to Rs 528 crore and average revenue per user (Arpu) rose 5.1% to Rs 165 a month.

Subhash Chandra, chairman, Dish TV India Ltd, said the company’s focus on quality additions is a counter-intuitive move, which has started delivering encouraging results. “The first quarter saw the company deliver strong free cash flows while maintaining healthy customer retention and investing in brand equity.”

With 0.2 million subscriber additions at the end of the June quarter, the company’s subscriber addition cost was down from Rs 1,996 to Rs 1,828 on a sequential basis. Earnings before interest, tax, depreciation and amortisation at Rs 121.7 crore was marginally higher than the previous quarter, while Ebitda margin for quarter stood at 21%.

Jawahar Goel, MD, Dish TV, said business performance was in line with expectations and that hike in pack prices and improved subscriber quality in the recent months resulted in a strengthened Arpu.

At Rs 30.4 crore, Dish TV narrowed down losses both year-on-year (Rs 32.3 crore) and sequentially (Rs 43.6 crore).

R C Venkateish, CEO, Dish TV India, pointed out that the business requires continued capital expenditure. “The most important matrix that shows the health of the organisation is the free cash flow and we are focused on getting that matrix in shape. And if you look at the whole of last year we generated Rs 65 crore in FCF and the number is Rs 48.4 crore in the first quarter of the current fiscal itself. And this is without sacrificing any growth numbers as we are growing over 6% quarter-on-quarter,” he said.

On Dish TV’s overseas ventures, Goel said, “Work on Dish TV Lanka (Pvt) Ltd, the company’s subsidiary, is progressing as per plan. Since it is going to be a zero subsidy model, it makes us all the more excited about the expansion.”

Focusing on strengthening the balance sheet, the Dish TV management is looking to retire a significant portion of its outstanding debt. The company, through its internal accruals, will look to repay approximately Rs 750 crore of outstanding debt through the current fiscal.

The analyst community has given a huge thumbs-up to the stock with the majority having a ‘buy’ call.

Raw deal for minority shareholders in Holcim deal

This story first appeared in DNA Money edition on Friday, July 26, 2013.

Stock market analysts’ verdict on Wednesday’s Ambuja-ACC-Holcim restructuring is emphatic that the deal offers no significant near-term benefits to minority shareholders.

Downgraded by several brokerages, the Ambuja Cements stock fell almost 15% in intra-day trade in Mumbai on Thursday, before recovering a bit to close at Rs 171, down 10.52%. ACC, too, fell and ended at Rs 1,194.10 (down 3%).

Investors did not seem to like Ambuja’s plan to buy a 50% stake in ACC from its parent Holcim at what could prove a significant premium, given the Rs 14,660 crore value of the cash-and-equity deal (which would also raise Holcim’s stake in Ambuja to 61.39% from 50.55%).

Out of 24 brokerages polled by Bloomberg, as many as 13 stamped a ‘sell’ call on the Ambuja stock; four brokerages advised investors to ‘hold’; two each were ‘neutral’ and ‘underweight’; while one each issued ‘underperform’ and ‘outperform’ ratings.

Chockalingam Narayanan and Manish Saxena, research analysts at Deutsche Bank, said in their report that Holcim has effectively shifted its stake in its India business by gaining a greater proportion of a more profitable business and Rs 3,500 crore in cash. “Our calculation suggests that at the current market price, the loss for minority shareholders of Ambuja may vary between Rs 400 crore to Rs 500 crore from this transaction.”  Their report issued a ‘sell’ call on both Ambuja and ACC stocks.

Holcim has restricted minority shareholders’ choice by using Ambuja’s cash for ACC’s stake, said Anubhav Aggarwal and Chunky Shah, research analysts with Credit Suisse.

“The cash could have been used alternatively for a buyback. Additionally, Ambuja has committed to acquire an additional 10% stake in ACC over 24 months. In our view, this will convert Ambuja into a net debt company; and from a Holcim perspective, it will be an idle structure as ACC plus Ambuja will be neutral on cash on a consolidated basis and shield Holcim from further rupee depreciation,” they said in a report.

Experts feel that Holcim is the only beneficiary of the proposed restructuring as it stands to pocket $600 million in cash whereas in the old structure, it was entitled to only 50% of Ambuja cash. The cash will help Holcim to reduce its net debt and maintain its investment grade rating, which is essential for keeping its interest costs low.

Calling it a one-sided transaction, Nitin Bhasin and Achint Bhagat, research analysts at Ambit Capital, said Ambuja’s acquisition of ACC will have no meaningful benefits except to Holcim. “This rearrangement does not suggest any value creation for either Ambuja or ACC shareholders and at best is value-neutral for Ambuja’s shareholders, considering the synergies. Holcim benefits by receiving Rs 3,500 crore without sharing any cash with minority shareholders,” said the analysts.

The proposed transaction at current market price (CMP) for both entities implies a valuation of $110 per tonne for ACC. Ankur Kulshrestha, research analyst, HDFC Securities, said that despite inexpensive valuation, majority shareholders of both ACC and Ambuja would end up losing in the deal. “We are very sceptical of the synergies (Rs 900 crore in cost savings over two years) being talked about,” Kulshrestha said in his report.

The primary cause for concern, analysts said, is that Ambuja chose to pay moderate dividends (35-40% payout) over the last few years without reinvesting for growth. And the company is now paying the price by losing market share. “We wonder why this transaction did not involve only shares or why the cash was also not distributed to minority shareholders,” the Ambit Capital analysts noted in their report.

Analysts said there are concerns about reinvestment highlighted by Holcim. For instance, Ambuja has not been reinvesting in capacity expansions despite its large cash pile. It invested capex of Rs 2,000 crore over the last three years and added only 2 million tonne of grinding capacity alongside maintenance capex.

Zee net up 43% on strong ad, subscription revenues

This story first appeared in DNA Money edition on Friday, Jul 26, 2013.

Zee Entertainment Enterprises on Thursday reported a 42.6% year-on-year growth in net profit at Rs 223.9 crore for the quarter ended June as advertising and subscription revenues surged.

Advertising and subscription revenues were up 18.5% and 16.5% at Rs 530.1 crore and Rs 424.1 crore, respectively.

Subhash Chandra, chairman, Zee Group, said the company’s performance reflects the investments it is making to grow its business and market share.

“This has been accompanied by a strong improvement in the operating performance of the company during the quarter,” he said.

Operating profit, or earnings before interest, tax, depreciation and amortisation (Ebitda), for the quarter rose 25% to Rs 291.5 crore, riding on a 15.5% jump in consolidated operating revenues to Rs 973.3 crore. The Ebitda and PAT margins stood at 29.9% and 23%, respectively.

Chandra said Zee continues to build its media assets despite being in a highly competitive space and in the process creates value for shareholders. “We have a strong balance sheet and I am confident that we would take advantage of the growth opportunities ahead of us.”

On the overall media and entertainment industry scenario, Puneet Goenka, MD and CEO, Zee Entertainment, said the fiscal has started with a good quarter both on operating and financial parameters. “These are exciting times and we are witnessing a lot of changes in the industry landscape. The phased implementation of Trai’s regulation with respect to advertising inventory on a clock-hour basis has started and is expected to be fully in place by the end of second quarter,” he said.

On the corporate side, Zee shareholders passed a special resolution approving enhancement of foreign institutional investor investments limit in the company beyond the current limit of 49% up to the maximum sectoral limit allowed under applicable foreign direct investment regulations.

Wockhardt tanks after FDA, downgrades hit

This story first appeared in DNA Money edition on Thursday, Jul 25, 2013.

Pharma major Wockhardt’s shares tanked 20% to Rs 660.90 on BSE on Wednesday as some brokerages downgraded the stock in response to manufacturing quality concerns expressed by foreign regulators.

Wednesday’s nosedive marks an extension of the recent downtrend in Wockhardt’s shares. Over the last three months, the stock underwent a massive correction of 65.44% from the high of Rs 1,912.3 on April 25.

The hammering on the bourses has eroded investors’ wealth by a whopping Rs 13,767 crore: from Rs 21,038 crore on April 25, it is now down to Rs 7,271 crore.

Trouble came from a series of import alerts and warnings from overseas regulators such as the US Food and Drug Administration (FDA) and the UK Medicines and Healthcare Products Regulatory Agency (MHRA) about Wockhardt’s Waluj manufacturing facility in Aurangabad, Maharashtra.

Last week, the FDA followed up its May import alert to the Waluj unit with a warning. Wockhardt said the warning is merely a formal communication, and kept its earlier estimate of $100 million impact on sales this fiscal unchanged.

But the road ahead is likely to get tougher for the Habil Khorakiwala-promoted drug-maker, market observers said.

A  review of the FDA warning of July 18 suggests that Wockhardt’s Waluj unit has been charged with six grave violations of current good manufacturing practices (CGMP) for finished pharmaceuticals.

The FDA alleged that Wockhardt officials not only withheld truthful information but delayed and limited its inspection. Worse, Wockhardt’s response to clarifications sought were not satisfactory, the FDA said.

Wockhardt has time till the first week of August to notify the FDA of the specific steps taken to correct and prevent recurrence of CGMP violations.

Murtaza Khorakiwala, MD of Wockhardt, said the company has already initiated the process of taking corrective measures, including appointment of a leading US-based consultant for its Waluj facility. “The consultant has extensive experience and expertise in CGMP and will work with the Wockhardt team to address issues raised by the FDA,” he said.

ACC becomes Ambuja Cements arm

This story first appeared in DNA Money edition on Thursday, July 25, 2013.

In an inter-group restructuring move, Switzerland-based Holcim Ltd is increasing its holding in Ambuja Cements to 61.39% from 50.55%.

In turn, Ambuja Cements will acquire its holding company Holcim India Pvt Ltd’s 50.01 stake in ACC Ltd.

In a two-step transaction, Ambuja Cements will acquire 24% stake in Holcim India from Holderind Investments Ltd, Mauritius (Holcim) for a cash consideration of Rs 3,500 crore. This will be followed by a merger of Holcim India into Ambuja and as consideration for the merger, Ambuja will issue 58.4 crore new equity shares to Holcim at the prevailing market price.

The merger of Holcim India would be in the ratio of one Ambuja Cement share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share.

Ambuja shares closed nearly 3% lower at Rs 191.1 on BSE, while ACC lost 1.16% to Rs 1,231 apiece on Wednesday.

Onne Van Der Weijde, managing director, Ambuja, said the transaction will increase profitability and facilitate more flexible use of capital. “Both companies will significantly benefit from a closer collaboration to be ready to embark on the next phase of growth and optimisation. Together we’ll drive increased realisation of synergy potential and save on costs,” Weijde said in a conference call late on Wednesday.

The synergy potential between Ambuja and ACC is likely to bring in cost savings to the tune of Rs 900 crore through supply chain and fixed cost optimisation.

This will be realised in a phased manner over two years post completion of the transaction.

The total deal value (cash and issue of share) is expected to be Rs 14,660 crore. Funding the cash component will be done through cash on books as payments to Holcim are to be made over a period of nine months.

Post the transaction, Holcim will own all its investments in ACC through Ambuja Cements.

“The transaction is expected to be neutral on Holcim’s EPS in the first full year following the completion of the transaction and accretive thereafter,” said Holcim CEO Bernard Fontana.

Weijde asserted that two companies will continue to function the way they have been in the past. The two brands will be retained and so will be the management team, separate retailer and dealer network.

Ambuja will be looking to increase its stake in ACC within the next three years.
Weijde confirmed that the company has clear intentions of doing so and a proposal to this effect has been approved by the board already.

“We will make commercially reasonable efforts to invest up to Rs 3,000 crore to acquire an economic ownership in ACC of up to 10% without triggering a mandatory open offer,” he said. However, Weijde denied any possibilities of delisting ACC anytime in the near or distant future.

According to Narotam Sekhsaria, non-executive chairman, Ambuja and ACC, “This transaction allows us to capitalise on the prevailing Holcim Group platform, promotes greater co-operation between the group companies, and unlocks significant synergies over time. Investment in the expansion project at Marwar Mundwa is a positive and big next step forward and shows Holcim’s commitment.”

The consolidation will result into a more balanced pan-India footprint with 58 million tpa capacity. Both companies will continue with their expansion plans of over 10 million tpa capacity with additional projects in the pipeline (e.g. ACC Ametha / Tikaria). As part of its long-term commitment in the Indian market, investment will be made by Holcim in Marwar Mundwa project with an overall capacity of 4.5 million tpa in North-Central India.

Ambuja will hold an extra-ordinary general meeting in the December quarter to approve the transaction and will complete the process of merger by mid next year.

Thomas Cook to sell SoBo property

This story first appeared in DNA Money edition on Wednesday, Jul 24, 2013

Travel and tour operator Thomas Cook India (TCIL) has put one of its back office premises at Nariman Point in south Mumbai (nicknamed SoBo for South Bombay) on the block.

The move is part of consolidation of TCIL’s workplaces.

Madhavan Menon, MD of TCIL, said the company consistently optimises and consolidates workplaces. “Given our growth and expansion plans, our Nariman Point back office offers limited scope. Hence our search for alternative space.

This also offers us an opportunity to explore new potential in this domain, including significant new office space in key emerging micro markets in proximity to our customers.”

TCIL declined to share valuation details for its proposed sale.

TCIL’s SoBo premises, fully furnished, with carpet space of 10,591 square feet (958 square metre), and close to the iconic Oberoi and Trident Hotels, will be disposed of on as-is-where-is basis.

As per JLL’s latest monthly real estate monitor, prime Mumbai office space could cost anywhere between Rs 21,000 and Rs 30,000 per sq foot, much costlier than similar spaces in cities like Hyderabad where the going rate is Rs 5,500-6,000 per sq foot. In Pune, it is Rs 4,750-5,000; in Kolkata, around Rs 18,000; in Delhi, around Rs 31,500.

TCIL’s SoBo back office is likely to fetch anywhere between Rs 23 crore and Rs 32 crore.

TCIL is understood to own around 32 properties or 1.26 lakh square feet (sq ft) of office space across the country. In addition, it reportedly owns over 60,000 sq ft and 43,000 sq ft in Mumbai and Delhi, respectively. In fact, the tour operator’s another SoBo property (at Fort) is estimated to be worth up to Rs 250 crore.

In May last year, Fairbridge Capital (Mauritius) had acquired a 76.69% stake in TCIL from its erstwhile UK-based parent. In February this year, TCIL diversified into executive search industry.

L&T earnings down, says road remains challenging

This story first appeared in DNA Money edition on Tuesday, July 23, 2013.

Engineering and construction major Larsen & Toubro’s (L&T’s) first quarter (Q1, April-June) net profit declined 12% on-year to Rs 756 crore but revenue grew 5% to Rs 12,555 crore while operating profit margin declined 0.6% to 8.5%.

But the firm’s MD and CEO K Venkataramanan struck a note of optimism that L&T retains its ability to undertake and deliver projects in a way that adds to shareholder value.

Yet, he conceded that “on the ground scenario” in the country is not rosy but full of challenges.

“We are going through the most challenging times...  The government is trying to push some big ticket items primarily in the areas of freight corridor, transmission and roadways.”

R Shankar Raman, CFO, said that opportunities are limited and there is competitive pressure on pricing. “I don’t think you’ll find (now) margin levels reported earlier in 2007-2009...”

L&T management expects to maintain its guidance on Ebitda margins of 11-11.5% for the year. During Q1, order inflow improved 28% to Rs 25,159 crore, increasing the order book size by 8% to Rs 1,65,393 crore.

Analysts tracking L&T said Q1 numbers were lower than expected, hence the stock’s 7.5% dive to Rs 901.95 on BSE on Monday, the biggest drop in nearly four years.

Sanjeev Zarbade, vice-president of the private client group research at Kotak Securities, said the Q1 numbers were disappointing in the short term; however, on a long-term basis, they remain positive.

Viral Shah, senior research analyst - infrastructure, Angel Broking, concurred. But he pointed out that L&T’s numbers were below expectations on both the revenue and profitability fronts. He attributed this to “lower-than-expected execution and poor operating performance”.

However, L&T may benefit from the gradual recovery in the capital expenditure cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to its peers, said Shah.

So, Angel Broking is likely to revise its target price and rating on L&T, said Shah.

L&T officials said the country’s infrastructure industry has not been faring well for a while now due to economic slowdown. Hence, the company has been aggressively pursuing international markets, which helped increase its international order book size by 16% during Q1.

“While international markets have their own challenges, we are making inroads there and the results should be visible in the near future. There is a business opportunity overseas and we will secure our share, thereby insulating ourselves from the India story, which is likely to be a little slow in the next two years,” said Venkataramanan.

Pvt placements in agri biz up 75% in Jan-Jun 2013

This story first appeared in DNA Money edition on Monday, Jul 22, 2013.

A substantially large Indian agricultural market, coupled with increasing activity in the sector, has led to a significant increase in private equity (PE) and venture capital (VC) placements.

Going by data compiled by research service Venture Intelligence, the sector witnessed a 75% year-on-year increase in PE/VC investments during the first six months of this calendar year.

A total of nine agri-business companies raised around $126 million in the first half compared with $72 million raised by six companies in the same period last year.

Agriculture and related businesses comprise the entire value chain, encompassing foods, agriculture produce, seeds, fertilisers, agri-technology and agri-infrastructure.

Industry experts feel businesses addressing the bottom of the pyramid offer a great opportunity for focused investment firms.

“Investing in agriculture and related businesses fit perfectly into their investment theme,” said a top official with an international transaction advisory.

The largest PE investment in the industry during 2013 was Multiples Private Equity’s Rs 250 crore ($43.24 million) investment in Bangalore-based Milltec Group, which develops technology and machinery for rice milling, roller flour milling, maize (corn) milling and agro-processing plants.

Another buyout focused PE firm, India Value Fund, has committed $40 million to pick up a majority stake in Kochi-based spices firm VKL Seasoning. VKL, a spin-off from the Vallabhdas Kanji Group, provides seasonings and flavours to customers, typically quick service restaurants, in India, the Middle East and Africa.

Interestingly, this time around, the agri-business sector also witnessed participation from investment firms based out of the Middle East region.

For instance, in February, Qatar-based Hassad Food acquired 69% stake in PE-backed rice exporter Bush Foods Overseas for around Rs 800 crore ($135 million), giving existing investor StanChart PE a 2.5 times return on its investment.

Similarly, last week, publicly listed rice exporter Kohinoor Foods agreed to sell a 20% stake for almost Rs 113 crore ($18.8 million) to Al Dahra Holdings, an Abu Dhabi-based agriculture focused investment firm.

Arun Natarajan, CEO, Venture Intelligence, said the rising appetite for such companies among overseas investors and also the higher prices being enjoyed by agri commodities in recent years could continue to sustain PE interest in the industry.

Apart from PE buyouts, the latest quarter (ending June) also witnessed VC funds and specialist agri-business focused funds stepping up their investment activity.

Omnivore Partners, an agri-business focused investment fund, announced two new investments in the latest quarter – in pork products firm Arohan Foods and fly trap maker Barrix Agro Sciences.

Additionally, Khyati Foods and Lawrencedale Agroprocessing attracted VC funding during the quarter from SEAF and Sarona Asset Management and Aspada Investments, respectively.