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.

Lupin targets 30% topline from US branded biz

This story first appeared in DNA Money edition on Wednesday, July 10, 2013.

As part of its long-term growth strategy, Lupin, India’s third largest pharma company, is looking to increase contribution of branded business to its overall US revenues to 30% from 21% last fiscal, mostly through the inorganic route.

Lupin group president and CEO-designate Vinita Gupta has been maintaining since the last few quarters that acquisitions would be part of the company’s overall business approach.

While scouting for brands in some geographies, the company is simultaneously looking to buy companies that can provide new technology and market access.

Balaji Prasad and Rohit Goel, analysts at Barclays Equity Research, said Lupin has identified key growth drivers for the next 7-10 years.

“Apart from increasing contribution from branded business, the management will be leveraging focus on speciality segments like derma and oral contraceptives in other geographies and sustaining its strong traction in the US,” they said in a report on Monday.

Among other key growth-drivers would be a strong balance sheet with the flexibility to raise up to $1.7-2 billion if required; a strong distribution network; alliances with doctors to drive growth in Japan; and strategic partnerships to strengthen domestic business.

“Lupin plans to enter the dermatology segment and could potentially acquire derma assets too in the business,” the Barclays analysts said.

The coming years will see Lupin management focus strongly on the oral contraceptive (OC) and dermatology segments. Industry experts think OCs in the US could also be leveraged to venture into other big markets such as the $1.5 billion OC market in Brazil.

With the resumption of OC approvals in the past six months (which saw eight approvals and one launch), OCs are being viewed as a major growth-driver for Lupin.

DB Realty to de-focus from hotel projects

This story first appeared in DNA Money edition on Monday, July 8, 2013.

With its real estate business getting back on track, Mumbai-based DB Realty has decided to not take up any new hospitality projects and shelve earlier plans.

Properties that have already been developed and are running will be retained by the company, while those in the pipeline will either undergo change of use or get divested.

Vipul Bansal, chief executive officer, DB Realty, said, “Hospitality is not the focus area and there is no plan really to expand the hospitality asset portfolio anymore. Projects where work has not started will either get converted into residential developments or we will get rid of them. The focus will purely be on the realty business.”

Without divulging details, Bansal said a development in Pune will get converted to residential project while the company will sell up to 49% in the land parcel (7.7 acre site) at Delhi International Airport’s (DIAL) new hospitality district.

The plot at DIAL is under DB Hospitality Pvt Ltd, a group company in which DB Realty hold 49% stake. Earlier plans were to house four hotels and a large convention centre. However, plans were restructured later to develop 1.3 million square feet of the plot featuring a hotel, a convention centre, serviced apartments along with 300,000 sq ft of high-end retail space.

“It’s a very ideally located land with roads on three sides. We are not developing it anymore so whosoever comes in as a strategic partner will decide its configuration,” said Bansal.

On reports about the company looking to sell operational hotel projects in Mumbai and Goa, Bansal said there were talks earlier with an investor to sell a minority stake.

“These are big landmark hotels, something that we’d like to retain,” said Bansal.
The Park Hyatt hotel development that was to come up at the company’s Charni Road, Mumbai, site has also been put on hold.

The company owns a small hospitality asset in Mundra (Gujarat) and another 50-odd guestroom property in Rajasthan, which are on the block for a while.

“If some body wants to buy we are more than willing to sell. However, there is no stress in the system anymore. Our banking lines are already open to meet day-to-day requirements. It is business as usual and any stake sale in our hotel projects will be purely opportunistic,” said Bansal.

On the residential front, the company has concluded sales worth about `800 crore in second half of the last fiscal.

The realtor is in advanced stage of getting key approvals for its 4-5 projects in Mumbai and expects to launch them in 6-8 months. The company will hit the market with 5-6 million sq ft in Mumbai at prices exceeding Rs 30,000 psf.

“We are talking about Rs 15,000 crore of fresh inventory in the market, which is very huge for us. We are very comfortable with Rs 500 crore debt as we have cash flow of Rs 70 crore every month. All our inventory is paid for so we don’t need to do any of the things done by other players in the market,” he said.

RCom to spin off land assets

My colleague Beryl Menezes co-authored this story first appeared in DNA Money edition on Monday, July 8, 2013.

Reliance Communications (RCom) on Sunday announced demerger of its real estate business into a separate entity to be called Reliance Properties, subject to “approvals from shareholders, lenders, courts”.

The real estate firm will likely be listed within four months. RCom shareholders will be given one share in Reliance Properties free for every one share of RCom they possess.

Analysts pegged the indicative value of one share of Reliance Properties at Rs 60, while the market price of an RCom share is Rs 130. This translates to almost 50% enhancement in the RCom shareholder’s value.

Analysts said the spin-off decision looks like a ‘desperate attempt’ by the highly leveraged RCom to pare its Rs 38,864 crore debt as of March this year.
Assets of Reliance Properties will include RCom’s prime property in Dhirubhai Ambani Knowlegde Centre (DAKC, pictured) in Navi Mumbai and a prime property near Connaught Place in Delhi.

RCom also has land in the new business district in Hyderabad and in Kolkata, which may also be considered for possible sale at a later stage.

The collective monetised value of 135 acres in Mumbai with a saleable area of 15 million square feet and four acres in Delhi is estimated to be about Rs 12,000 crore.

RCom said in a statement that it will now focus on its core wireless telecom and enterprise business.

An RCom spokesperson said the demerger will a transparent process and would not impact RCom’s profitability.

Analysts said the demerger seems to be aimed at creating large shareholder value, similar to the value created from the initial demerger of the Anil Ambani-led Reliance Group from Reliance Industries in 2005.

Sources said that RCom may be in discussions with one or more suitable investors already. RCom’s management on Sunday admitted that Reliance Properties would be also working with foreign investors to sell / lease its real estate assets.

Further details about the new company – management, headquarters, so on – will be revealed once the mandatory approvals are obtained.

In December 2012, RCom had entered into an agreement with Wanda, China’s leading real estate group, to lease out assets in DAKC and Hyderabad. RCom confirmed that the property up for grabs as part of Reliance Properties would be separate from that currently under development by the Wanda group.

Harit Shah of Nirmal Bang said, “The (spin-off) move is positive for (RCom) shareholders, as the land was not being used. Now, it will generate some value.

While the benefit to RCom will accrue only after the process of acquiring a stake in Reliance Properties is complete, the fact that the company had to hive off its real estate assets due to the debt burden, even when it has better assets like FLAG, which it is unable to sell, speaks volumes about the current state of the company. Even after floating Reliance Properties, what is key for RCom is to get the actual valuation of the land from investors, as estimated by the company.”

Sanjay Dutt, executive MD-South Asia, Cushman and Wakefield, a real estate firm, said, “Large corporates that are under financial pressure tend to use their non-performing assets to raise funds for the core business. While this is not a bad strategy – it was earlier used by Siemens, Tatas and HUL – ideally, RCom should have sold the land assets, as they are not a real estate company.

Further, one would have liked to know what is the vision of the company and whether the alternate route (if somebody wants to unlock the value of the unutilised assets) is to auction, sell land, put the money in the bank or give it to the shareholders and be happy.”

Ambar Maheshwari, MD-corporate finance, Jones Lang LaSalle, another property firm, said, “Real estate prices have gone up despite the tough economic environment in the last few years. Most corporates are looking at somehow monetising or optimising it.”

Cement prices sag, may fall further

This story first appeared in DNA Money edition on Saturday, July 6, 2013.

Cement prices declined across the country in the last fortnight except in South despite efforts by manufacturers to arrest price fall ahead of the lean monsoon season.

Prices fell Rs 10-20 per 50-kg bag in the last 10 days of June after rising Rs 5-25 per bag between May-end and early June in northern, eastern and some pockets of western India, according to a pricing trend report by Motilal Oswal Securities.

The demand too remains sluggish in most regions and may worsen in the next one month due to monsoon. Prices are likely to fall further due to weakness in demand.

Jinesh Gandhi, vice-president - research (cements), Motilal Oswal, said in the report that after rising till mid-June, prices on a month-on-month basis in north and east were down by Rs 8-15 per bag.

“However, central India posted relatively lesser volatility, albeit exit prices (June-end price) were down by Rs 10-15 per bag. Markets in west – Mumbai and Nagpur – remained mostly stable though Pune and Ahmedabad saw strong swing during June. Raipur (east) and Bhopal (central) showed stable to marginal increase in prices,” he said.

Cement firms generally raise prices ahead of monsoon as June to September is a lean period for sales.

In Pune, after rising by Rs 10 in May, prices went up by another Rs 20-25 in June. However, in the second fortnight of June, they fell by Rs 20.

Prices fell Rs 40 per bag to Rs 225 in Ahmedabad, before rising to Rs 260-265 per bag due to production discipline, which, some dealers said, was about 30% by Tier I players.

According to the report, mid-June prices of Tier II/ outside brands (like Wonder cement) went down to as low as Rs 197 per bag in Ahmedabad.

In Delhi, Jodhpur and Chandigarh, prices were down Rs 5-10 per bag. After Rs 15-20 per bag increase in May, Delhi and Jodhpur saw another increase of Rs 10 per bag in June before reversing by Rs 20 per bag in the last couple of weeks.

Contrary to the declining trend, markets in south India (the first to hike prices) saw cement prices either remain stable or increase.

“Prices in AP were up by Rs 90-100 per bag over past 45 days, led by production discipline. AP dynamics impacted the adjacent markets positively with Bangalore and Chennai seeing Rs 15-20 increase,” said Gandhi.

Some dealers from central and eastern parts see good harvesting season boosting rural demand, he said,

“Overall, while visibility remains weak for the near term, medium-term demand outlook has optimism with several infrastructure/power projects underway,” he said.

New DTH connections to cost more on rupee fall

This story first appeared in DNA Money edition on Friday, July 5, 2013.

Those looking to buy a new direct-to-home (DTH) connection, get ready to shell out more.

Given the rupee’s decline, DTH operators are left with no option but to pass on the incremental cost of importing set-top boxes (STBs) to new subscribers.
Leading the pack is DTH market leader Dish TV, which has a 28% share of India’s $1.5 billion, 32.4 million subscriber (2012 figures as per Media Partners Asia) DTH industry.

The company has increased the prices of its standard definition (SD) and Dish Plus recorder STBs by Rs 250 effective Thursday to Rs 2,249 and Rs 2,349, respectively. No hike has, however, been effected for high-definition (HD) set-top boxes, which continue to be sold at Rs 3,099.

The increase in STB prices more or less mirrors the rupee’s decline against the dollar. The local currency has lost almost 12% in the last two months and closed Thursday at 60.13.

Dish TV officials did not share further details citing silent period for their fiscal first quarter results, which are due soon.

Other DTH players, including Tata Sky, Reliance Digital and Airtel Digital are also hiking prices.

Harit Nagpal, CEO & MD, Tata Sky, the Tata Sons DTH joint venture with Star India, confirmed the price hike, saying changes in currency rates hurt the company since it imports all its STBs.

“New customers will now get a Tata Sky connection at a marginal (8-10%) increase owing to the falling exchange rate of the Indian rupee,” he said, adding that the new rates took effect on July 1.

A Reliance Digital TV spokesperson, too, confirmed a Rs 260 hike in SD set-top boxes to Rs 2,250 from July 4.

Officials from Videocon d2h and Sun Direct could not be reached.

Though Airtel Digital has not formally announced its decision yet, a company official said a price hike is inevitable.

“DTH companies are already facing challenges by offering STBs at subsidised rates. The depreciating rupee is only making things tougher. I’m most certain that STB prices will be increased in more or less the same proportion to what competition undertaken,” the official said, requesting anonymity.

The DTH industry is on a growth trajectory thanks to compulsory digitisation prescribed by the Telecom Regulatory Authority of India. Industry experts feel DTH players will benefit the most in the third and fourth phases of digitisation, covering the entire nation by December 2014.

A report by Media Partners Asia, an independent provider of information services focusing on media, communications and entertainment industries, the Indian DTH industry will grow to $3.9 billion and  63.8 million subscribers by 2017 and $5 billion and 76.6 million subscribers by 2020.