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.

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.