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.

HCC back in black after eight quarters

This story first appeared in DNA Money edition on Saturday, Aug 3, 2013.

Analysts expected Hindustan Construction Company (HCC) to report increased losses for the first quarter (Q1, April-June). After all, losses have been plaguing the construction and engineering major for the last eight quarters.

But surprise, surprise, HCC reported a Q1 net profit of Rs 19.2 core. For perspective, here’s a tidbit: in Q1 of last fiscal, HCC’s loss was Rs 31 crore.

The stock market quickly cheered the news, sending HCC shares to the upper circuit limit in intra-day trade. HCC closed 20% up at Rs 9.60 on the NSE.

Total income increased 19% on-year to Rs 1,149 crore. Operating profit or Ebitda stood at Rs 201.2 crore (Rs 69.1 crore in Q1 of last fiscal). Ebitda margin was at 17.6%.

HCC management attributed the turnaround to operational efficiencies, cost control and pending claims from clients.

Praveen Sood, group CFO, said 40% of the turnover came from the NH-34 project in West Bengal and the Kishanganga tunnel project in Jammu and Kashmir.

HCC’s consolidated Q1 debt  was Rs 10,000 crore while standalone debt was Rs 4,600 crore. Its order book stood at Rs 13,970 crore, excluding contracts worth Rs 2,265 crore where it emerged as a preferred bidder and is hopeful of winning the orders by the year-end.

During Q1, HCC received around Rs 40 crore in claims from government agencies NHPC and the National Highways Authority of India.

As part of its asset monetisation plan, HCC is in advanced stages of divesting its 18 lakh square foot (msf) commercial development at 247 HCC Park, Vikhroli, Mumbai, for Rs 175 crore.

Sood said due diligence is currently on and the deal is likely to be closed soon. Construction activities at its Lavasa township project in Maharashtra is in full swing with 5,000 workers on ground.

During Q1, 110 residential units were sold and more than 500 apartments and villas have been completed.  With 1.9 lakh tourists visiting the hill station, HCC’s hotels there registered average occupancy of 70%.

Glaxo patent on breast cancer drug revoked

This story first appeared in DNA Money edition on Saturday, Aug 3, 2013.

The Intellectual Property Appellate Board (Ipab) has done it again – revoked a patent belonging to a pharmaceuticals multinational.

Barely four months after revoking Bayer-Natco’s patent on cancer drug Nexavar, Ipab, the patent appeals agency under the commerce ministry, has cancelled the patent granted to the British drug major GlaxoSmithKline Pharma (GSK) for its breast cancer drug  Tykerb, the salt form of Lapatinib compound that is sold in the country.

Ipab, however, upheld GSK’s patent for lapatinib compound which is the active ingredient in Tykerb, citing innovative merit.

The ruling was delivered on July 27 by Justice Prabha Sridevan, chairperson of the Chennai bench of Ipab.

In April, the Supreme Court (SC) had set a precedent by rejecting a patent for Novartis’s cancer drug Glivec. The apex court had held that Glivec was an amended version of a known molecule called imatinib.

A GSK spokesperson said the company was pleased that Ipab upheld its basic patent for the Lapatinib compound which is valid till January 2019.

“We are, however, disappointed that Ipab has revoked our later expiring patent for the lapatinib ditosylate salt. This ruling only relates to the lapatinib ditosylate salt patent in India and does not affect our basic patent for Tykerb or corresponding patents in other countries,” the spokesperson said in an email statement.

“We will consider the possibility of taking further steps before the appropriate authorities to validate this.”

Tykerb has provided significant benefit to women with HER-2 positive breast cancer in India over the four years it has been available.

 As part of its easy drug access strategy, GSK has been offering Tykerb at discounted prices. A strip of 10 Tykerb tablets costs about Rs 4,160 and a patient is expected to take five tablets a day for 21 days if the cancer is in an advanced stage.

Industry experts said intellectual property protection is important to ensure that innovation is encouraged and aptly rewarded, and research-based pharmaceutical companies continue to invest in developing new medicines.

Surajit Pal, pharma analyst, Prabhudas Lilladher, said, “It will be another blow to Indian MNCs looking to introduce global brands or global patented drugs. Companies might rethink their strategies for the Indian market.”

Some analysts said pharma MNCs like GSK test the waters by having differential pricing for patented drugs in emerging markets and are not always driven by profit motive.

Moreover, patented drugs are niche products that generate high margins but low revenue.

So, Ipab’s latest decision may reinforce a view that drugs patentable in global markets are not patentable in India; but, from the end-user’s viewpoint, it could prove positive, analysts said.

For, Indian companies tend to offer generic versions of patented drugs at one-tenth of the price charged by the inventor.

“Companies like GSK may think twice now before introducing patented drugs in India,” said an analyst.

Berggruen plans 75 hotels by 2016

This story first appeared in DNA Money edition on Friday, Aug 2, 2013.

Berggruen Hotels, a six-year-old hospitality firm, plans to have a total of 75 hotels by 2016 from its earlier target of 40 hotels.

The new hotels to be launched by the company backed by New York-based investment firm Berggruen Holdings would be through a mix of owned, managed and franchise routes.

It currently has a guestroom inventory of over 1,300 across 14 operational hotels, of which six are owned and rest management contracts.

Sanjay Sethi, MD and CEO, Berggruen Hotels, said, “Seventy-five hotels will give us a total guestroom inventory of 6,600 across key metros, mini-metros and leisure destinations. We currently have 21 hotels under various stages of development, of which six (including two owned) will open in this fiscal. We will have one hotel getting operational every five weeks in the next eight months.”

He said the company is targeting a revenue of  Rs 410 crore for fiscal 2016 and Rs 135 crore for the current one. It is expecting operating profit of Rs 45 crore for this fiscal.

Berggruen Holdings, which had committed equity of $75 million at the time of inception of the hospitality firm in September 2006, has invested $62 million so far.

An additional Rs 135 crore through debt funding has been pumped in as well.

On further investment by Berggruen Holdings, Sethi said, “They are not averse to the idea, but new investments will be very opportunistic in nature and will be done on a need-to-do basis.”

A majority of the new hotels will be targeted at the mid-market segment under the Keys Hotels brand.

The company on Thursday added a new upscale hotel brand ‘Keys Klub’, which will largely cater to the top management personnels in the corporate world.

These hotels will come up in metros including Pune, Mumbai, NCR, Chennai, Kolkata, Jaipur, Ahmedabad and Hyderabad.

Berggruen, which plans to enter luxury segment in the future, is negotiating a land parcel to construct its own greenfield Keys Klub branded hotel in Mumbai, details of which were not disclosed.

“Discussions are currently on for 4-5 properties and our first Keys Klub hotel under management contract should hit the market in the next 10-12 days. Each Keys Klub property will have a guestroom inventory of over 100 and room size will be upwards of 275 square feet. The per-room development cost in these projects will be Rs 45 lakh excluding land cost,” said Sethi.

The first Keys Klub is likely to come up in Pune with guestroom pricing in Rs 4,000-6,000 range.

RInfra eyes reverse migration; Q1 flat

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

Reliance Infrastructure (Rinfra) reported a 0.7% on-year increase in first quarter (Q1, April-June) consolidated net profit at Rs 415 crore. Consolidated total operating income increased 1.2% on-year to Rs 5,452 crore. Earnings per share or EPS stood at Rs 15.8 against Rs 5.7 in Q1 of last fiscal.

Encouraged by a strong balance sheet and a debt-to-equity ratio of 0.92:1, the lowest in the industry, RInfra will be looking at a mix of organic and inorganic growth opportunities, particularly in the roads sector.

Lalit Jalan, CEO, said the company has looked at 30 different road projects but no deal has been concluded due to high valuation expectations from sellers. He added that inorganic expansion will not be restricted to roads sector alone.

RInfra has 60 lakh customers, out of which 28.8 lakh are in Mumbai. During Q1, it added 17,050 new customers. In the context of the multi-year tariff petition filed in 2012 and the public hearing that followed, the company said it has got clearance from the electricity appellate tribunal concerned to issue new cross subsidy surcharge and new regulatory assets for this fiscal.

“The entire hearing process is over and we expect the new order will be out any day. Once the order is put out, there would be significant reverse migration because RInfra is much more competitive than Tatas, in terms of total cost of power,” said Jalan.

The company’s engineering, procurement and construction or EPC business has large projects in the the pipeline, including expansion of the Sasan, Chitrangi and Thialayya projects and the hydro-electric projects of Reliance Power.

On the infrastructure front, RInfra has already commissioned nine road projects and it expects  two existing projects to get revenue operational this fiscal.

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.