ITC set for international foray with luxury hotel in Colombo

Cigarette to hospitality company ITC Ltd is set to enter the international hospitality market with a luxury hotel in the capital city of Sri Lanka, Colombo. The Indian hospitality major is currently in the last leg of discussions with Sri Lankan government and expects the deal to get sealed very soon.

ITC Hotels’ spokesperson confirmed the development saying final details are still being worked out. “All I can say at present is that details about the land parcel, investment, brand, guestroom inventory etc are being discussed,” he said. The project will be developed as a green hotel.

Quoting Sri Lankan government sources, a PTI report said that the ITC is likely to invest Rs 1,544 crore ($300 million) for the said project. The government has approved a $300 million foreign direct investment (FDI) enabling the hotel to be built on 5 acre land parcel located in close proximity to military headquarters in Colombo's famous Galle Face landmark beachfront on a 99-year lease, said the PTI report.

“ITC is a reputed hotel investment group in India, with investments and hotel in India. The government hopes that its presence in Sri Lanka will be a significant contribution toward promoting FDI and the tourism industry in the country,” said the Sri Lankan government information department.

The report further added that the Board of Investment of Sri Lanka will enter a Memorandum of Understanding (MoU) with ITC Hotels enabling the firm to execute the project under concessionary tax terms with permitted exemptions on investments.

The land parcel in discussion was earlier allocated to China Aviation Technology Import Export Corporation (CATIC) for $73.5 million for a hotel project. However, the Chinese firm later withdrew and the Sri Lankan government is in the process of reimbursing $54.4 million dollars already paid by CATIC for the lease of land.

Also Read: ITC will manage third-party hotels...

IndiaReit Fund to exit 2-3 investments in 2012

An edited version of this story first appeared in DNA Money edition on Friday, December 02. 2011.

Come 2012 and IndiaReit Fund, a subsidiary of Piramal Healthcare Ltd, will be looking to exit from 2-3 investments made from its developments funds till date. The exits are expected to give the real estate focused investment firm between Rs 450 to Rs 500 crore. The firm will also look to make a couple of new investments with some of their existing partner companies.

Ramesh T Jogani, managing director and chief executive officer, IndiaReit Fund Advisors Pvt Ltd, said, “We are talking on exits with all our investments but there is nothing that will happen in the next one or two months. It will take a couple of quarters for a few deals to conclude because when you talk to four people one might get active and eventually fructify,” he said without giving specific details.

Jogani said that since exits cannot be planned, the management basically works towards building on their entry point. “We have made enough exits from all our funds and when the time is right we take the exit call. The preferred route is selling back to the developer (buyback), exits through third-party or a real estate fund,” he added.

IndiaReit currently manages a corpus of over $900 million, spread across four funds (three domestic funds and one offshore fund), besides the AIM-listed Trinity Capital Plc. The investment firm recently invested Rs 200 crore in Mumbai-based Omkar Realtors’ mixed-use development at Mumbai’s premium location i.e. Worli. The investment was made from its Rs930 crore Domestic Fund IV.

Elucidating their approach to investing in current market scenario when investing in real estate is not concerned as smartest of the moves, Jogani, said that as a rule an investor must invest when times are not very good. “This is because you can get good opportunities. Investing into Omkar’s special purpose vehicle for the Worli development falls in this category and makes for a very good investment. Besides offering a prime location for development, we also have a very lucrative entry point with this investment. If we launch it at the right price, there is enough demand and the market will lap it up. I think liquidity is not an issue in Mumbai but affordability certainly is. We have worked out the affordability level and worked backwards before making this investment,” he said.

While the investment in Omkar SPV doesn’t give IndiaReit a stake it gives them preferred returns and a percentage on upside. “We have invested Rs 200 crore and if everything goes as per plans we should get 2.2x in terms of money multiple post tax,” he said.

The investment firm recently launched an Rs500 crore rental yield fund with a green shoe option of Rs250 crore. An offshore fund it will have a life of 6 years and money will be raised through high net worth individuals, particularly the non-resident Indians (NRIs) from Dubai, Middle East and Singapore. “It will be placed through leading players like ICICI and HDFC with a minimum investment of $100,000. An internal research was conducted to study the investor appetite and we found there was enough excitement in the investor community especially with rupee depreciating against the dollar. We have just started the road show and will take 5-6 months to close the entire fund raise,” said Jogani.

In terms of investment pipeline, the firm has been largely focusing is on five cities namely Mumbai, NCR, Pune, Bangalore and Chennai. It was also looking at the Hyderabad but since the real estate scenario there isn’t looking very good owing to political issue, oversupply in residential and commercial space the management has now de-focused from further developments there.

The firm is currently working with 9 partners however is not restricted to any opportunities outside these set of companies. The activity is largely in the residential and commercial segment and the investment sweet-spot is Rs70 – Rs80 crore in Tier II markets while it is Rs 200 crore in cities like Mumbai as properties are more expensive.

“Our chief reason to invest in a project is our lucrative entry point such that even if market falls beyond a certain point we do not loose money. For example if Rs100 is the selling price, I’ll remove Rs30 as construction expenditure so we are left with Rs70 and my entry price will be anything between Rs25 to Rs30. This approach allows us to make at least 2x returns from day one from any of our investments. If the markets go bad it could come down to 1x but if the markets improve we could get a return of 3x – unfortunately no one has seen that kind of returns (3x) in the last five years though,” he said.

Between the four funds, IndiaReit currently manages Rs 3,000 crore out of which Rs 350 crore is yet to be deployed. The Rental yield fund will add Rs 750 crore taking the available cash for investments to Rs 1,100 crore odd in calendar year 2012. “It is decent enough corpus to meet our investment activity for the coming year. Besides, fund raising is an annual affair for us so we may look to raise another one sometime next year,” he said.

IndiaReit’s current investment portfolio comprises 7 investments with a commitment of Rs620 crore across residential, commercial and hospitality projects. Seven investments with a commitment of Rs 290 core in Bangalore for residential projects. In the Hyderabad market, it has committed Rs 300 crore across 5 investments developing residential and integrated townships, 2 investments in Pune with a commitment of Rs350 core for residential and integrated townships, 1 investment of Rs24 crore in Chennai for residential project and Rs 20 crore for another residential development in NCR.

Reliance MediaWorks partners VenSat Tech for Chennai VFX studio

Anil Ambani-led film and entertainment services company Reliance MediaWorks Ltd (RMWL) has got into a strategic alliance with VenSat Tech Services to expand its visual effects (VFX), computer graphics (CG) and animation capabilities the country. As part of the arrangement VenSat will also set up a studio in Chennai dedicated exclusively for VFX, CG and animation projects allied with RMWL for Indian films.

Anil Arjun, chief executive officer, RMWL, termed the alliance as a strategic win for the company in many ways. “The alliance augurs well with our market positioning as an end-to-end service providers to the Indian media and entertainment inducts wherein VenSat gives us direct presence in Chennai enabling us to strengthen reach in the southern film market. This apart, their creative and technical expertise adds depth to our existing capabilities to execute projects in the Indian film market,” said Arjun.

As part of the arrangement, one of VenSat’s co-founders Venkatesh Roddam will take over a new role and join RMWL’s management as CEO of its entire film and media services division based out of RMWL’s Los Angeles office in the US. The alliance with VenSat is RMWL’s second initiative to beef up presence in south India media and entertainment market. Earlier, towards October end this year, the company had taken over management of Hyderabad-based Annapurna Studios, which is owned by veteran Telugu actor Akkineni Nageswar Rao’s family.

While financial details related to setting up of the new facility in Chennai were not disclosed, RMWL official said that VenSat already operates with over 200 artists from a studio spread across 14,680 square foot at Ascendas IT park in Chennai . The new dedicated studio will be carved out from the existing space and will house a team of 50-odd artists who will work exclusively on Indian film projects bagged by the alliance. Adding the Chennai facility will further enhance RMWL’s present strength of over 1000 artists between its Mumbai and London studios that handle domestic and international projects respectively.

Not restricting the services to just south film industry, the alliance will tap film projects from across the country thereby gaining a significant pie of the film and entertainment services business in the country. The size of animation, VFX and post production industry, according to KPMG, was pegged to be at Rs 2,360 crore in 2010 and witnessed a growth of 17.5% as compared to 2009. Industry experts envisage the growth momentum in this sector to continue in the coming years with a cumulative annual growth rate (CAGR) of 18.5% to reach Rs 5,590 crore by 2015.

In terms of value-proposition the alliance will offer its clients vis-a-vis existing competition in the market, Satyanarayana Mudunuri, executive director and co-founder VenSat Tech Services Pvt Ltd, said that competition continues to intensify both domestically and around the globe.

“The market situation calls for identifying key competitive advantages and focus on core competencies. Developing and harnessing the right competitive advantage will greatly improve our chances for success in getting new projects. We (RMWL-VenSat) will be able to leverage and complement out combined strengths and competencies to create meaningful synergies that would augment the market place. There are a few players in the industry but a strategic alliance as this will certainly bring great value to customers,” said Mudunuri.

VenSat, co-founded by Satyanarayana Mudunuri and Venkatesh Roddam in 2009, is a global provider of creative services for the international motion picture, television, home entertainment, gaming and mobile entertainment markets. Among some of its big budget projects include high grossing films namely Dabangg, Robo, Bodyguard and Ra.One.

Dalits will benefit the most from FDI in retail, says Dalit Indian Chamber

While chief minister of Uttar Pradesh Mayawati feels foreign direct investment (FDI) in retail will drastically impact livelihoods of the dalit section of the society, representatives from the community feel otherwise.

Speaking at a Confederation of Indian Industry (CII) discussion on FDI in retail, Milind Kamble, chairman, Dalit Indian Chamber of Commerce & Industry (DICCI), said, on the ground level, the schedule castes (SC) and schedule tribes (ST) will benefit the most with this move by the government.

“Approximately 8 million new job opportunities will get generated in the next 10 years and a significant percentage of the requirement will be for semi-skilled work force. This is a huge opportunity for the dalit youth who have not been able to pursue education beyond 10th and 12th standard. With short-term training programmes with assured placement being offered by most retail chains the dalit youth will be able to get gainful employment in these retail stores as well as other support areas including logistics firms,” said Kamble.

The dalit entrepreneurs are also set to benefit from the local sourcing clause which is one of the caveats for approving FDI in retail. “Of the overall sourcing by the retailers, 30% will have to be sourced locally of which around 4% will have to be from companies run by dalit entrepreneurs. This is again a very good move by the government and will work towards development and growth of the community,” said Kamble.

Rupa Mehta, chairperson, CII (WR) Family Business Task Force, said, previous experience has shown that good small and medium enterprises (SMEs) have survived and prospered well that too in face of competition. “I do not see any reason to change this optimism. Despite concerns about small kirana shops getting impacted leading to closure, not a single store had shut down in the past five years when modern retail grew to 7% from 2%. I firmly believe that Kirana stores today will innovate and change their complexion, but not go out of business. With this policy decision, Indian SMEs will get opportunities not only in Indian supply chain but also access perhaps to global markets,” she said.

Echoing the sentiments, Thomas Varghese, chairman, CII National Retail Committee and  CEO, Aditya Birla Retail, said, mom and pop kirana stores will shut down but not because of FDI in retail. “They shutting down because their new generation is not very keen on running kirana stores and wants to explore more lucrative job opportunities that go with the current market scenario,” said Varghese.

Satish Jamdar, vice-chairman, CII Maharashtra State Council and managing director, Blue Star Ltd, said the policy on FDI in retail is the right one and in the large interest of the country. “We recognise that there are some concerns, but it is time to cut through the hype and examine and address those concerns. On the whole, we feel FDI in retail will bring in choice, quality and price benefits to the consumer while providing growth opportunities especially to the farming and manufacturing sectors. Also today the service industry is a large generator of employment. Of the service industry, retail industry will potentially be the largest employer, if we factor in the back end infrastructure support. Consumers have benefited from the modern trade so far and FDI in retail will act as hedge against inflation,” he said.

Rating agency Crisil feels foreign retailers are unlikely to gain a dominant share over the next five years and that foreign direct investment (FDI) in multi-brand retail will stimulate investment in Indian retail sector. According to Crisil estimates FDI inflows of $2.5–3 billion over the next five years is modest in the context of overall FDI inflows of $160 billion in India over the past five years.

While food and grocery (F&G) vertical would attract a larger share of the likely FDI inflows, the clause specifying 50% investment in back-end infrastructure especially aligns with the commercial requirement in this segment. F&G accounts for two-thirds of Indian retail sales, but currently has organised retail sales of only around 2%, the lowest among retail verticals.

Ajay D’Souza, head, Crisil Research, said, “To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale. Every percentage point reduction in supply chain cost and resultant gain in earnings before interest, taxes, depreciation and amortisation (EBITDA) margin can improve equity internal rate of returns (IRR) of an F&G store by 250-300 basis points. Foreign retailers, with their access to capital and technology, are well placed to leverage this opportunity.”

French group Accor to open 12 hotels next year

This story first appeared in DNA Money edition on Thursday, November 17, 2011.

French hospitality major Accor is all set to more than double the number of its hotels and guestrooms in the Indian market by December 2012. It will open 12 hotels next year, adding 2,516 guest rooms to the existing 2,016 across 10 hotels in the country.

Accor will also debut three new brands— Sofitel, Pullman and Formule 1 — taking the number of operational brands in India to six from three (Novotel, Mercure and Ibis) earlier.

Michael Issenberg, chairman and chief operating officer, Accor Asia Pacific, told DNA, “Our first Sofitel branded hotel will open for guests next month in Mumbai. The 302-room hotel would be located at the Bandra Kurla Complex. Early 2012 will see another two brands — Pullman and Formule 1 — make their debut in Gurgaon and Greater Noida, respectively.”

The new openings include Formule 1 (3 hotels), Ibis (5), Novotel (2), and one each under Pullman and Sofitel brands. These would be a mix of owned and managed properties as well as pure management contracts with different asset owners.

Accor’s hotel pipeline till 2015 includes four Pullman, 14 Novotel, five Mercure and 12 Formule 1 hotels. “Our plan is to have 90 hotels across our brands in India by 2015. While we are emphasising on the mid and economy segments, efforts are being made to expand in the upscale segment as well,” said
Issenberg.

The Sofitel Mumbai hotel is being developed in partnership with city-based realtor Shree Naman Group wherein Accor has invested $16 million (Rs71 crore) for a 40% stake. Work on the hotel started in November 2006 and was scheduled to open in 2009.

The total cost of the project then envisaged was Rs473 crore. While the two year delay has shot up the project cost, Accor officials said their holding in the asset remained at 40%.

Two more Sofitel hotels in the pipeline though details have not been yet made public.

The Pullman Gurgaon Central Park project is a pure management contract with Delhi-based realtor Central Park, which is also developing a four-star hotel at the Delhi International Airport Aerocity Project.

All the Formule 1 hotels in the pipeline (12 hotels by 2015) would be owned and managed by Accor.

“The Formule 1 hotels are positioned at the economy segment carrying the sub-Rs2,000 price tag for a night’s stay. These hotels will largely compete with brands like Ginger and offer limited services. The food and beverage facility in these hotels will be outsourced to third-party firms,” said Issenberg. Accor formed a joint venture with InterGlobe Enterprises in 2004 to set up 15 Ibis hotels with 2,700 rooms at an investment of Rs805 crore by 2007.

Currently, there are four Ibis hotels operational in the country with another five to open in 2012.

Phoenix Mills cutting down frills, takes over arms

This story first appeared in DNA Money edition on Wednesday, November 16, 2011.

Multi-use integrated property developer, Phoenix Mills (PML), has set out to cut down the clutter. As part of its business restructuring exercise, the BSE-listed company is looking to acquire controlling stakes in its subsidiaries before merging them. The idea is simple: to keep the number of arms to a minimum and avoid complications in financial reporting.

On Monday, PML said it has acquired a controlling stake in Market City Management Pvt (MANCO) from Entertainment World Developers (EWDPL) and Big Apple Real Estate Development Pvt Pradumna Kanodia, director-finance, PML, said the company will be looking to merge some of the other wholly owned subsidiaries (WoS) with MANCO.

“It is a small company with a 40% holding and has been acquired at book value of Rs 6 lakh. The company was originally designed to take care of our property management contracts (PMCs) and other activities. We realised eventually that such an entity was not required anymore and hence, we have taken 100% ownership.

Going forward, we feel reporting in consolidation will be a Herculean task with too many subsidiaries. Reducing the number of companies that we need to manage will make accounting and reporting a lot simpler,” he said. Earlier in September this year, the company had acquired Mugwort Developers Pvt Ltd. The said acquisition, according to Kanodia, was also part of the broader restructuring initiative.

In another development, PML is targeting a March 2012 breakeven for its Phoenix Market City Pune property launched earlier in June this year. With around 22% occupancy at the time of launch, the property is currently enjoying occupancy of 60-65% with over 200 operational stores giving the developer rentals of over Rs 5 crore.

“The initial response for Pune property has been very encouraging. We are targeting a profit after tax (PAT) level breakeven by this fiscal end. The current rental realisation is almost covering my interest requirement for the month. We are hopeful the occupancies will reach 90% by March 2012 and averaging at close to Rs 65 per square foot (PSF) in terms of rental value. This rental realisation will not only cover our interest but will also take care of the repayments thereafter,” he said.

PML’s flagship luxury hotel Shangri-La with the High Street Phoenix development at Lower Parel in Mumbai which was to open by now has got further delayed owing to approval related issues. While the developer (PML) has completed most of the execution work, the management now envisages 3-4 month delay in the opening. “Given the current approval related issues faced by most developers in the city of Mumbai, we now feel a March-April opening of the hotel will be more realistic as against December which was communicated earlier. It will basically start with soft launch and the entire asset should be completely operational in a couple of months thereafter,” he said.

After numerous delays since 2009, the Shangri-La Hotel, Mumbai was envisaged to finally open by the year end. Its asset owning company, Phoenix Mills Ltd (PML), had earlier planned to soft-launch the property with 50% inventory sometime in Q2 FY2010-11. However, PML ran into problems with one of its contractors as a result of which work on the project suffered until new contractor was appointed. Work on the project finally resumed towards the end of 2010 and PML management was optimistic about handling over the hotel to the management company (Shangri-La Hotel and Resorts) for a soft-launch by December 2011. However, with the new set of delays, the property is now expected to start receiving guests by March-April 2012.

Featuring 410 guestrooms and 23 serviced apartments when fully operational, Shangri-La Hotel, Mumbai will soft launch with 250 guestrooms. The serviced apartment units will however be launched in the third and final phase which is likely to happen by the end of 2012-13. 

Most of the hotel projects being developed by PML sit under a separate special purpose vehicles (SPVs). The Shangri-La Hotel, Mumbai is under Pallazzio Hotel and Leisure Ltd (a subsidiary of Phoenix Mills Ltd). The overall cost of the hotel project is envisaged to be over Rs 700 crore, of which Pallazzio Hotels has already pumped in Rs 483 crore in equity while the balance is debt.

In an earlier interaction, Shishir Shrivastava, group CEO and joint managing director, PML, had said, “We have invested close to Rs 625 crore as of now and additional investment of Rs 175 to Rs 200 crore will be made to fully complete this property. The equity part has already gone in and we are now drawing down the debt component as and when required based on the extent of work completed.”

Cox & Kings to bring in two Holidaybreak models

This story first appeared in DNA Money edition on Wednesday, November 16, 2011.

Travel company Cox & Kings (C&K) sees significant revenues coming from Holidaybreak, its recent acquisition, from the next fiscal, even as it plans to bring the UK firm’s two successful business models to India.

Anil Khandelwal, chief financial officer, Cox and Kings Ltd, said, “The contributions will come largely from Holidaybreak’s adventure and education divisions. As C&K’s existing business has a direct co-relation with these segments, we expect to improve the performance of these divisions by at least 5-7% on an annual basis. We also expect to increase capacity utilisation of the education division by 2-3% in the next fiscal.”

While the numbers may appear small, Khandelwal said, they are very significant given the large volumes at these divisions.

“This apart, we expect the revenues and profitability of Holidaybreak to improve from the next financial year,” he said.
C&K acquired the London Stock Exchange-listed Holidaybreak in July for Rs2,400 crore and payments to the tune of 310 million pounds have been made to the registrar to be paid to the Holidaybreak shareholders.

In the recently concluded (October to September) fiscal, Holidaybreak had revenues of 436 million pounds with an operating profit of 44.8 million pounds. The education and camping divisions have contributed significantly to the rise in its profitability.

“There is an increase of almost 2 million pounds in operating profit. The company has demonstrated good results, despite tough economic environment,” he said.

C&K is looking to bring Holidaybreak’s education and youth hostels divisions in India. “A lot of work in terms of evaluating and bringing these two concepts in India is being done,” he said.

Post the Holidaybreak buy, C&K has formed a committed of senior management personnel of both the companies to work on the integration plan.

While one of the big four consultancy firms has been appointed to look into the integration exercise, C&K has also brought on board a specialist who was involved with the travel company since it went public in 2009.

While C&K isn’t facing any problems due to economic slowdown in Europe and the US, its operations in Japan continue to be under pressure post the earthquake and tsunami situation there.

“We don’t see any visibility (revival of business) in the third and fourth quarters with respect to the Japanese operations,” he said.

Growing hunger for coal takes Tatas to Canada

My colleague Promit Mukherjee is the lead writer of this story, which first appeared in DNA Money edition on Tuesday, November 15, 2011.

The salt-to-software conglomerate, the Tata Group, is just not content with its substantial presence in Canada’s iron ore mines like Direct Shipping Ore and Taconite projects. Over and above the majority stake in those assets, it wants more and now has its eyes firmly set on the country’s metallurgical coal reserves, too.

The discussions are at a preliminary stage. Canadian ministry officials have let out that the group is looking at the British Columbia province of Canada for investment, which has huge reserves of metallurgical coal, also called coking coal and used for steel making.

“We are very much open to Indian companies picking up stakes in our mines and out of several companies we have spoken to, the Tata Group has shown a considerable interest to put in money here,” said Christy Clark, premier of the Province of British Columbia.

Clark is here in India for a business-cum-political visit and was in Mumbai to attend the Indian Economic Summit organised by the World Economic Forum and the Confederation of Indian Industries (CII).

Clark admitted that in this race for Canadian metallurgical coke, which is exported extensively, China seems to have the first-mover advantage and India has so much catch-up to do. In fact, citing a specific example, she said the China Investment Corporation recently picked up a 40% stake in a huge metallurgical coal mine in the province.

“China and Japan have huge interests in the region and we are also inviting Indian companies to the province as we have a gamut of opportunities for Indian companies here,” she said.

Currently, the bilateral trade between India and Canada is pegged at $2.1 billion of which a meagre $135 million comes from British Columbia.

Clark is out to change that and says she sees no reason why the figure can’t jump by a big margin over the next few years, given the promise the province holds.

Mining is just part of the bigger story. Clark has a string of meetings lined up with several business leaders in Mumbai and Bangalore over the next two days to push opportunities in various other fields like clean energy, LNG, shale gas, digital media and film, life sciences and mining. “Besides mining, British Columbia offers great opportunities in clean energy and LNG and we are keen on Indian participation in these sectors,” she said.

Clean energy - which includes hydro, bio fuel, solar and geothermal - accounts for as much as 93% of the power generation pie in British Columbia, but so far, Indian companies have been conspicuous by their absence from the scene.

Talking about what more is in store, Clark said the province has embarked on an ambitious $25 billion (Canadian) LNG project, the first part of which will come up in 2015 and the next will be ready by 2020. “Even in this project, Chinese companies have bid aggressively, but there has been no participation from Indian firms. We want companies here to come and invest in the project,” she said.

Canada is also keen to roll out a red carpet to Bollywood. “With a massive density of Indian population in our province, we want to make Vancouver the Bollywood of the West,” she added.

Currently, the bilateral trade between India and Canada is $2.1 billion out of which merely $135 million comes from British Columbia. Clark said with the number of opportunities present in the province, she wants to increase the number manifold in the next few years.

What ails infrastructure in India?

This story first appeared in DNA Money edition on Tuesday, November 15, 2011.

 - India gets about 100 hours of rainfall out of the 8,760 hours in a year, yet faces water shortage as the country has no facility to harvest rain water.
 - Despite having 500 billion tonne of coal reserves, India has tapped only 1%, even as fuel crunch pervades across power facilities.
 - Infrastructure in India is developed in such a haphazard manner that it ends up creating bottlenecks instead of facilitating smooth operations for stakeholders.

This was the theme that emerged at a seminar on infrastructure at a World Economic Forum summit, where industry participants felt that answer to the current woes lay in developing infrastructure holistically, or in totality, rather than in bits and parts.

“We waste $45 billion worth of efficiency because of our non-holistic view on the infrastructure development. This figure is expected to grow at least three times in the next 10 years,” Ravi Sharma, CEO, Adani Power, said.

Infrastructure development comprises growth in the healthcare, information technology, water, housing and real estate, education, energy and logistics industries.

James Stewart, chairman - global infrastructure, KPMG, UK, said, “While each and every sector contributes a certain level of growth, exceeding thresholds is only possible if the developments are looked at in entirety.”

Harpinder Singh Narula, chairman, DSC India, felt the government or the planners do not understand that the end user (public) has to be a participant in this. “The government can either take an inclusive or a top-down approach. However, adopting the latter leaves no possibility of taking a holistic view and that’s what we see happening in India,” he said.

Ankur Bhatia, executive director, Bird Group, said infrastructure development in India largely happens when ‘push comes to a shove’ kind of a situation.

“In most cases, we are developing infrastructure much behind of when it is required,” he said. “The aviation industry caters to 75 million people and a lot of them are repeat travellers, which mean only 30-35 million are taking to the skies in a market which is 300 million big. The primary reason is while people have the capacity to pay, a lot of destinations are not connected by flights.”

Participants also blamed government paralysis, bureaucratic stonewalling of projects and corruption for the infrastructure mess.

“The government has, by necessity, given lots of space to the private sector,” said Rajiv Lall, CEO of IDFC. “But having unleashed this genie, it has struggled to keep pace with it ... enthusiasm and skills of private developers far outpace the government’s ability to provide support.”

Ajit Gulabchand, the CMD of Hindustan Construction Cosaid there is a “huge slowdown” in infrastructure-building. “Scams have created a lull in decision-making, people are afraid to take decisions,” he said. With Reuters, adding “India has hurt itself by stalling projects.”

Infrastructure developers complain that the government has not kept its side of its bargain by failing to create a policy framework to allow the sector to grow.

“There is no sector where the policies are consistent, where policies are long term, where policies are really thought out,” said Sharma of Adani Power.

With Reuters

Companies sitting on Rs3.5 trillion cash. Albatross?

My colleague Nitin Shrivastava is the lead writer of this story which appeared in DNA Money edition on Monday, November 14, 2011.

Coal India, with cash and equivalents of Rs55,000 crore on balance sheet, is symptomatic of the story of corporates today: they are simply unable to deploy funds meaningfully, be it through investments, mergers & acquisitions or treasury operations.

So much so, cash held by companies surged by a third in the last one year to an all-time high of Rs356,452 crore as of September 30, according to an analysis by DNA.

That’s a 9.8% increase in six months and a staggering 33.71% year on year. In all, 283 companies (excluding banks and financials), which represent two-thirds of the market capitalisation of the Bombay Stock Exchange, were looked at.

“Companies have deferred investments over the last few quarters which is obviously reflecting in higher cash balances. The macro environment has been challenging with the sharp spike in interest rates and policy paralysis affecting business sentiment. Also, in these uncertain times, you need to keep a warchest ready,” said Anand Shah, chief investment officer at BNP Paribas Asset Management.

Reliance Industries, Coal India, ONGC, NMDC, Infosys and NTPC are among the biggest hoarders.

Coal India has the highest cash balance among all at Rs54,980 crore, according to the company’s results released on Saturday. The top 10 cash-rich companies contribute Rs221,168 crore to the hoard.

“The increase in cash balances reflects improvement in operating performance which has led to higher cash flows. Indian companies had undertaken huge capex some 2-3 years back, which is showing in cash flows now for some of the companies,” said the head of equities at domestic brokerage house, who did not wish to be named.

But, even as cash levels have risen, the total debt of companies continues to surge.Total loans of these 283 corporates stood at Rs11,23,244 crore as of September 30, up 16.6% over the last six months and 28.44% in the last 12. Experts believe this is not necessarily because of fresh investments.

“The rise would have been due to companies taking loans to meet higher working capital requirements and on account of higher inflation,” said Nischal Maheshwari, head of research at Edelweiss Securities.

Few capital-intensive sector companies such as Adani Power, Reliance Power, SAIL, NTPC and oil marketers are the ones which have seen substantial rise in debt.

“My sense is that a part of this money is actually debt cash. Barring IT, the cash position with a lot of other companies is on account of borrowed funds. And taking risk by deploying debt-based cash is not really what companies would want to do,” said Vivek Gupta, partner, M&A practice, BMR Advisors.

There’s a case that companies are not making full use of cash as returns on fixed deposits yield at best 5-6% post tax, compared with their net profit growth, which is multiple that at around 12-15%.

There are 68 companies sitting on net cash surplus after accounting for debt — the major ones being Coal India, Infosys, ONGC, Cairn India and TCS.

“Overall, corporates are not confident on the growth front. Demand is not improving in many sectors and margins are under pressure. The saving grace till now has been that revenue growth has been healthy, which may slowdown in the coming quarters on account of lag effect of interest rate hikes on demand and the higher base of last year. Also, higher capital investment tends to have an impact on immediate return on equity and the returns get better only after a few years, once capacity utilisation goes up,”said Shah.The capex cycle has come to a standstill and is at a trough, according to some.

“As for mergers & acquisitions (M&A), opportunities are being looked at more fundamentally. It’s not being done with the same euphoria as during the 2008 downturn. People are taking a more calibrated and deliberate call now,” said Gupta.

The Street believes the cash conservation mode will continue till the headwinds show signs of easing.