Eros to finalise NYSE IPO by August-end

This story first appeared in DNA Money edition on Wednesday, Aug 14, 2013.

Eros International, a leading global media and entertainment company, is likely to finalise its New York Stock Exchange (NYSE) listing plan by this month-end.

The company had filed for an initial public offering (IPO) for $250 million with the US Securities and Exchange Commission in March last year.

Eros International has a BSE-listed subsidiary / associate company called Eros International Media (EIML). The latter’s officials could not be reached for comment.

An industry source, however, said EIML is very likely to disclose the NYSE listing details at its annual general meeting on August 28.

In another development, EIML has partnered with YM Movies of music luminary A R Rahman to produce a Hindi feature film which will mark the latter’s debut as a film producer.

“It is a 16-year relationship with Eros and this time it is extending the role a bit more. It is about exploring the other side of creative partnership,” said Rahman in a statement.

The yet-to-be-titled film has been conceived and written by Rahman with help from international and local talent and will celebrate youth’s sensual love, art and self-discovery.

IHCL sees room rates rising in Oct

This story first appeared in DNA Money edition on Tuesday, Aug 13, 2013.

Indian Hotels Co Ltd (IHCL), the Tata group hospitality flagship, has reported a 42.42% decline in consolidated net loss at Rs19 crore in the first quarter fiscal 2014 over corresponding quarter last year. Total income from operations during the April-June quarter was 7% higher at Rs908 crore on year.

Anil P Goel, executive director-finance, IHCL, said the company saw an occupancy of 59% across the portfolio of hotels in India. “The average room rate (ARR) for the quarter at Rs8,300 was slightly lower as compared with the last year.

Operating margins, at 11%, were in line with last year. We have been able to bring down financing costs by 23% over the previous fiscal,” he said.

With the Indian hospitality set to enter the business season in the next 45 days, the company is hopeful of marginally increasing the room rates.

Deepa Misra, senior vice president–sales and marketing, IHCL, said there has been an overall 20% increase in supply of hotel rooms during April–June, 2013 over last year.

“Most of the new supply (about 69%), has come in the upper upscale, upscale and midscale segments and 28% in luxury (largely Chennai and Hyderabad). Demand growth has been 17% for this period. However it is still trailing supply growth by 3% which has had an impact on the hotel industry occupancy and average room rates (ARRs),” she said.

On the international business front, Goel said the portfolio has performed very well with all the three hotels in the US reporting encouraging results in the first quarter.

“Both Boston ($300 - ARR) and San Francisco ($300 - ARR) have touched 80% occupancy while it is 77% at The Pierre ($640 - ARR) against 65% last year. We will be looking to increase the ARRs in these markets.

“The UK market has been quite stable, Maldives is likely to stabilise by the time we get into the business season, hotels in Sri Lanka, Malaysia, Bhutan and Sydney are doing fine as well,” said Goel.

As of August 2013, the company has a total inventory of 14,506 rooms. In the current fiscal, IHCL will add 12 hotels (mainly through management contracts) and inventory of 1,575 rooms.

Dish TV plans domestic sourcing of set-top boxes to offset rupee drop

This story first appeared in DNA Money edition on Monday, Aug 12, 2013.

Dish TV, India’s top direct-to-home (DTH) operator, is considering domestic sourcing of digital set-top-boxes (STBs) to offset rising costs due to rupee depreciation.

A flagging rupee has been an industry-wide concern for a while now, calling for efforts to control the related impact on business, the company’s top official said.

Jawahar Goel, managing director, Dish TV India, said on a recent analyst call, “Given the depreciating rupee, we are evaluating possibilities for improvement in hardware economics of consumer premises equipment (CPE) sourced from India. We have also been considering options with our overseas suppliers to commence production at a base in India.”

Last month, Dish TV had taken a price hike of `250 per STB to bridge the widening gap between cost of CPE and the amount realised from the customer.

Other DTH players such as Tata Sky, Airtel Digital and Reliance Digital followed suit by increasing prices broadly in the same range.

Also, in this year’s Budget, Union finance minister P Chidambaram had hiked customs duty on imported STBs from 5% to 10%. Considering there aren’t many domestic manufacturers of STBs for the digital cable and DTH sectors, the government’s decision to make imported STBs expensive was seen as a move to incentivise domestic manufacturing and bringing more players in the market.

Among the few local STB manufacturers are Noida-based Dixon Technologies, Kortek Electronics and Videocon Industries. International players including Hampshire-based Exset are understood to be exploring tie-ups with Indian manufacturers to produce STBs here.

Industry experts said Dish TV’s move to source STBs locally may be followed by other players, experts said.

“We have a hunch that in the near future there can be a higher duty on import, because of the balance of payment issues. In fact, we have already alerted our vendors to set up shop, to convert and produce the STBs locally. We are not buying new STBs for next 3-4 months as we have enough stock. And by that time the vendors are likely set up shop in India,” said Goel.

Dish TV currently has an inventory of 1.4 million STBs and another 0.6 million with the channel partners. At `60 a dollar, the total cost of the CPE, company officials said, is close to `2,700 for a standard definition set. DTH players have been offering STBs at a subsidised cost to attract subscribers but are gradually expected to move towards a zero-subsidy model by increasing prices. Commenting on the possibilities, R C Venkateish, CEO, Dish TV India, said,

“We are moving towards elimination of subsidies in the next one to two years. So certainly a combination of efforts to reduce costs as well as increase prices will be used. Local manufacturing will play a crucial role towards this. While it is not a very big chunk, even a couple of hundred rupees of savings will go further towards reduction of subsidies.”

He said the company is focused on increasing value delivery to the customer and is coming up with innovations. “New products will be introduced in the second half, which will further position us separate from cable,” he said.

Lupin sets up R&D in US, ropes in Teva, Sandoz executives

This story first appeared in DNA Money edition on Saturday, Aug 10, 2013.

Lupin, the country’s third largest pharmaceutical company, has just begun setting up a research and development (R&D) centre in the US, but the R&D head of Teva Pharmaceuticals and another top official from Sandoz, the generic pharmaceuticals division of global industry leader Novartis, are on board already.

Lupin is identifying other key officials and expects to get the R&D centre operational around August next year.

Vinita Gupta, CEO of Lupin, said the company started working on the US R&D project six months ago. “It’s a work in progress. We are attracting top-notch research and business development talents for this facility. Some key officials have come on board in the last quarter and they are working on putting together plans and partnerships. Our goal is to get the products in the respiratory and dermatology segments into the market as soon as possible.”

Another reason for the R&D unit in the US, she said, is that it “help us to undertake research of controlled substances, something we can’t do outside of the US because of their import barriers”.

On an average, the company spends 7.5-8% of its net sales on R&D. Last fiscal, it spent Rs 709.80 crore. Some 9% of Lupin’s 13,000 staff worldwide are in the R&D space.

Desh Bandhu Gupta, founder and chairman of Lupin, said, “We’ve been learning a lot from our domestic R&D centres. The US facility will add to this overall learning and the drug discovery process.”

Lupin has invested Rs 2,778 crore in the last six years in R&D. It has two R&D centres in India: Lupin Bioresearch Centre in Pune, a centralised set-up with 1,400 scientists,  and Lupin Research Park in Aurangabad, a smaller facility with 50-60 employees. The Pune centre’s biotechnology group has already received its first marketing authorisation for an oncology product. It received milestone payment of $6.5 million for two products being jointly developed with Medicis Pharmaceutical Corporation.

The centre is conducting bioequivalence studies for its generic products and branded formulations, and has completed 19 full studies last fiscal, taking the overall tally to 83. It filed for 157 new patents last fiscal, taking the overall total to 1,181.

Lupin targets 50% sales from brands

This Q&A first appeared in DNA Money edition on Thursday, Aug 8, 2013.

Lupin Ltd reported 43% increase on-year rise in the first-quarter net profit at Rs 401.1 crore. Analysts, however, were not impressed over 5% fall in domestic revenues and 12% sales drop in Japanese market, which led to the stock falling 6.5% on Wednesday. Vinita Gupta, CEO, Lupin Pharmaceuticals Inc and group president & CEO elect, Lupin Ltd, spoke about the Street's concerns and expansion plans. Excerpts from the interview:

On first quarter results
The concern is that a big part of our income about Rs 100 crore is other income. But the P&L is presented in a way that it captures just one part of the foreign exchange impact.
The Rs 100 crore is primarily forex impact on transaction gain and the other lines in the P&L capture the expenditure. So, the net forex impact is Rs 30 crore. Besides, this is also after a long time when our revenue grew in single digit. The reason primarily is the slowdown in India business, the US business grew 20% in dollar terms and 25% in rupee terms. India has been a challenge with National List of Essential Medicines, which came into effect in June. Our Japan business grew 5% in yen terms but yen depreciated so in rupee terms we had an impact.

On next level of growthWe have a host of growth drivers. On the generic side -- in the US as well as other parts of the world like Japan -- we have a huge pipeline of over 175 products, of which only about 50 have come into the market. We are also working on growing the pipeline and investing in differentiated platforms that will help us in long-term growth for the generics business.

On new drug discovery plansOur biggest differentiator is we are trying to build, will be the Novel Drug Discovery and Development (NDDD) programme. Our efforts are directed towards identifying and developing new therapies for areas including metabolic/endocrine disorders, pain and inflammation, autoimmune diseases, CNS disorders, cancer and infectious diseases. We have a portfolio of 10 novel compounds that are moving through a robust pipeline from discovery to development.

On specialty / branded businessWe are trying build the brand business in the US to start with and have also started looking at other markets. If you look at our business 60% is generics and the balance is branded. The branded business is more profitable compared to generics hence is more sustainable in the long term. It is our endeavour to make branded 50% or more.

On Alinia deal with RomarkWe have acquired rights for US market for Alinia drug from Romark. We have partnered with them on the oral suspension which is focused on the pediatric market. They were doing $2 million in the pediatric market and we have taken over that revenue and would build it from here. While the overall market for that drug is $2 billion the pediatric part is small and we think we have a very good product to be able to get a good share.

Indiareit raises Rs 300 cr under domestic fund

This story first appeared in DNA Money edition on Wednesday, Aug 7, 2013.

Indiareit Fund Advisors, the real estate private equity (PE) arm of Piramal Enterprises, has raised Rs 300 crore out of its targeted Rs 1,000 crore Domestic Scheme V (DS-V) fund.

This is the sixth in the series of funds raised by the investment firm that currently manages a total corpus of Rs 4,343 crore across five earlier funds and two third-party mandates.

Khushru Jijina, MD, Indiareit, said the company managed the fund-raise despite a tough business environment. “The speed of the interim close is testament to the quality of our sponsor, track record of the platform and our constant endeavor to always act in fiduciary capacity for our ever growing family of investors,” said Jijina.

DS-V is targeting structured returns by taking advantage of the mismatch between the availability of capital and its demand from the real estate sector.

As a result, company said, the investment underwriting will focus on the quality of the project, visibility of cash flows and track record of the development partner. This apart, an extra layer of security will be added to enhance the risk-return profile, it said.

Additionally, the PE firm’s Mumbai Redevelopment Fund (MRF) has reached its targeted corpus of Rs 500 crore.

Until a couple of months ago, the fund had raised Rs 400 crore and has now reached a final close. MRF is targeting a niche strategy focused on slum and redevelopment projects in Mumbai and has already committed around 40% of its corpus.

New Zee film channel to target youngsters

This story first appeared in DNA Money edition on Wednesday, Aug 7, 2013.

Zee Entertainment Enterprise Ltd (Zee), India’s leading media and entertainment company, is launching a new Hindi movie channel to engage with the younger audience.

Christened ‘&pictures’ and positioned as a premium and interactive movie channel, it will go on air on August 18. A pay channel, it will initially be available with all the cable networks and later be extended to the direct-to-home (DTH) operators.

Bharat Ranga, chief content and creative officer, Zee, said the company has own network of consumer feedback that comes from across 172 countries.

“Many people shared details about their lifestyle, beliefs, values, likes and dislikes, and based on these insights we found out that households these d ays comprise members with a new emerging set of mindset. We thought there was an opportunity to cater to these television viewers worldwide and hence creation of this new brand,” said Ranga adding that more launches can be expected in the future.

Commenting on the logo, the company officials said the ampersand sign in ‘&pictures’ signifies ‘Udaan’ (flight) and ‘Neev’ (rooted) and celebrates the duality of contemporary Indians.

“The Ampersand in the logo merges seamlessly with the ‘p’ of pictures and connotes the ease with which today’s viewer blends his ambition to soar high while remaining rooted to his sacrosanct values. The colour red radiates the viewer’s bold ambition as well as the richness of their traditions,” said Ranga.

&pictures will be the sixth movie channel in Zee’s bouquet that comprises Zee Cinema, Zee Cinema HD, Zee Premiere, Zee Classic and Zee Action. The new channel’s programming slate will be anchored by 24 hours of daily content including premieres of upcoming big-ticket films in its first year.

The new channel will have a nucleus of 250-300 films, of which 80% including the likes of Chennai Express, Zanjeer, Besharam, Ghanchakkar, Commando and Aatma will be exclusive to the new movie channel.

The rest will be picked from the common Zee library, particularly those released in the last 10 years. Among the newer titles in the library include films Kai Po Che, ABCD, Barfi, English Vinglish, Tanu Weds Manu, Love Aaj Kal, Agent Vinod, Agneepath, Desi Boyz, Kambakt Ishq and Break Ke Baad. In fact, 90% of ZEEL’s common library comprises movies released post 2000.

Also, the company has lined up various innovations to be unveiled in the coming months.
Taking the first step towards interactivity the channel has announced a contest for India’s first digital crowd sourced film on Twitter.

Akash Chawla, marketing head (national channels), Zee said, “We will also launch some advanced products that will take interactivity to a completely new level altogether.”

Godrej Prop strikes Gurgaon, Panvel deals

This story first appeared in DNA Money edition on Tuesday, Aug 6, 2013.

Godrej Properties, the Godrej group’s real estate arm, has signed its third premium residential development in Delhi/NCR (National Capital Region) market.

The Mumbai-based realtor entered a joint development agreement with Oasis Buildhome to develop a 13.7 acre land parcel on the Northern Periphery Road (NPR) in Gurgaon. The project is expected to offer 1.2 million square feet (msf) of saleable area.

Pirojsha Godrej, managing director & CEO, Godrej Properties, said, the project fits well with the company’s strategy of growing presence in leading real estate markets.

“We will aim to replicate the success of our previous projects in the Gurgaon market,” he said.

Anuj Nangpal, MD-Investor Services, DTZ International Property Advisers Pvt Ltd, said this particular project is expected to deliver a topline of anywhere between `800  crore and Rs1,000 crore.

In another development, the realtor has added 37 acre to its existing 110 acre township project in Panvel. Located between NH4 and the Mumbai–Pune Expressway, the land parcel will be developed in partnership with the landowners.

According to Godrej Properties, the combined project has an estimated saleable area of 4.3 msf as per the current Special Township Policy (STP). The saleable area available in the project is likely to increase to above 11 msf as per the proposed STP and it will receive 35% of the profits from the development.

The realtor has also acquired the ‘Godrej’ trademark from Goderj Industries for Rs25 crore.

Hotels catch 'deflagging' fever as owner, operator lose love

This story first appeared in DNA Money edition on Tuesday, Aug 6, 2013.

The bonhomie between hotel operators and the owners of the respective assets is starting to fade as the ongoing economic stress shows no signs of letup.

Indeed, in some cases, the cracks have reached a stage where a parting of ways appears to be the only option left. After the spate of flag-hopping – where a property rebrands under another operator either at the end of the agreement period or on termination of the deal – seen last year, therefore, it’s time to ‘deflag’.

Take Hilton Worldwide’s partnership with Eros Resorts & Hotels Ltd (ERHL), part of realtor Eros Group, founded by J R Sood and currently run by his son Satish Sood. The global hospitality major is understood to be ending the association – inked in 2011 – with ERHL to manage their two new and one already existing hotels.

A Hilton Worldwide spokesperson brushed aside the claim. “These are speculations. We have no comment.”

However, an industry source said one of the management agreements between the two parties has been allowed to expire already, while the other two will expire by September-October this year.

“The Soods are unlikely to renew the three management contracts as hotels in the Delhi-NCR region are not doing well as was projected earlier. In fact, the asset owners had earlier roped in InterContinental Hotel Group (IHG) to manage the three hotel assets before bringing Hilton on board. And now Hilton is on its way out as well,” said the source, requesting not to be quoted.

ERHL couldn’t be reached for comment. The two Mayur Vihar hotels (located next to each other) are being managed under Hilton and Double Tree by Hilton brands, while the Nehru Place property is being operated as Eros Hotel, managed by Hilton. The three hotels will, in all likelihood, be operated as standalone properties branded and managed by Eros after October this year.

However, Eros may also be looking to divest the 160-room Hilton hotel at Mayur Vihar and is believed to have already given a ‘sell’ mandate.

But as if losing three hotels wasn’t bad enough, Hilton appears to have more pain in store.
The five-star Hilton Hotel at Janakpuri, owned by Piccadilly Hotels, may go out of its network as well, said the earlier-quoted source. “The asset owners are in talks to bring in a new operator. Hyatt Hotels Corp is seen as a strong contender for the property.”

A Hyatt spokesperson said there was no official communication from the company on the said development.

Yet another instance of de-flagging involves a Starwood Hotels & Resorts brand – the 240-room Sheraton Udaipur Palace Resort & Spa. Earlier operated as a standalone property under Rockwood Palace Resort & Spa brand, it was re-branded by Starwood under a new management contract with the asset owners (Rockwood Hotels & Resorts Ltd) in August 2010.

Starwood’s India office said it had no comment to make on Sheraton Udaipur at this point.
The source, however, insisted that “Sheraton Udaipur will get deflagged by the end of this fiscal.”

The economic slowdown, industry experts said, is the key factor driving the deflagging trend. Hotel asset owners are getting impatient and unwilling to foot the bill for operational expenses when hotels are not making money.

“Given the liquidity crunch, asset owners have started intervening in the management company’s ways and means of operating the hotel. Some have started dictating terms as well by asking hotel operators to cut costs by reducing the number of expat personnel in their respective hotels. So positions like expat chefs and general managers are being carefully watched for cost rationalisation purposes,” said a top industry official.

But there’s another side to the problem, too, feel a section of industry experts. According to them, hotel operators sometimes tend to over-promise and under-deliver. What makes the situation worse is that the gap between revenue and expenditure gets significantly highlighted in stressed market conditions.

“Imagine being promised average room revenues of Rs 8,000-9,000 in a Tier II market when the maximum one can get is Rs 4,000-4,500. When the situation prolongs and expenses continue heading north, asset owners get in the damage control mode and take matters in their own hands,” said an official in charge of hotel development for a leading domestic chain.

Cement demand to stay damp this quarter

This story first appeared in DNA Money edition on Monday, Aug 5, 2013.

Good rains that are likely to remain strong for the rest of the monsoon are set to keep cement demand under pressure in the ongoing July-September quarter.

While demand for cement between May-end and June was supported by pre-monsoon increase in construction activities, it is unlikely to be sustained going forward, experts said.

In its update on the industry, ratings agency Icra said off-take remained weak in April-May 2013, mainly due to lacklustre demand from end-user industries.

“Domestic cement production grew by 8.2% year on year (yoy) in April 2013 as compared with 12.5% a year ago. The growth slowed to 3% yoy in May 2013, pulling down the overall growth rate in April-May 2013 to 5.6% yoy. Though the demand picked up temporarily from May-end, it does not reflect any fundamental recovery in prospects,” it said.

K C Birla, chief financial officer, UltraTech Cement, said while April and May saw 5.8% growth in demand, it was just about 1% in June.

“Overall, demand growth for the quarter was around 3-4%. Surplus capacity in the sector of around 90 million tonne per annum coupled with lower demand has put significant pressure on pricing,” said Birla, adding his company’s per-tonne realisation was down 6% for the first quarter, impacting profitability.

Cement prices, which weakened during March and April 2013 due to less demand, recovered somewhat from mid-May 2013.

The hike in prices was supported by pre-monsoon increase in construction activities.

The industry also raised prices to pass on the increase in coal prices by Coal India Ltd (CIL).

As a result, the average wholesale cement prices (per 50-kg bag) increased around Rs 10 in Delhi, Rs 17 in Chandigarh and Rs 5 in Kolkata during April-June 2013.

Prices in some parts of southern India including Bangalore and Chennai also saw hike of Rs 10-15 per bag in June.

However, in the last week of June, prices came under pressure in northern, western and eastern regions with declines of Rs 5-20 per bag seen in
Delhi, Chandigarh and Ahmedabad markets.

Hyderabad, which saw average wholesale cement prices fall 20% from Rs 283 in July 2012 to Rs 228-232 per bag in April 2013, too saw a steep recovery in prices in the last week of May 2013.

The prices increased 30% to Rs 296 per bag in June 2013 there, driven by slowdown in capacity addition in South, production discipline and cost pass-through to customers.

On the cost side, the cement industry was affected by increase in coal prices by Coal India Ltd (CIL).

In May 2013, CIL reduced the prices of premium varieties of coal (G3 and G4) with gross calorific value in the range of 6100-6700 kcal/kg by 10% in line with decline in international coal prices.

To offset this, CIL raised the prices of low-grade coal (G6-G17) varieties used by Indian cement companies by an average 10%.

The impact of this hike will be more pronounced on companies which depend more heavily on domestic coal, Icra said.