This story first appeared in DNA Money edition on Thursday, Oct 18, 2012.
Swiss cement major Holcim will likely collect a hefty royalty from its two Indian listed subsidiaries ACC and Ambuja Cement, according to persistent but unconfirmed market talk. Experts tracking the sector said the talk has been around for some time, though ACC and Ambuja have been denying any such move.
Now, with the two companies in the silent period ahead of the announcement of quarterly results today, the buzz appears set to continue for a while. For the record, ACC officials declined to comment, while Ambuja Cement officials could not be reached.
Industry sources said parent Holcim has apparently been considering imposition of royalty charge to the extent of 2% of sales on both of its subsidiaries. It could be levied anytime in the third (Q3) or fourth quarter (Q4) of this fiscal.
The said 2% could translate into around or upwards of Rs 58 crore for ACC, given its April-June sales of Rs 2,919 crore. On an annual basis, it could be around or upwards of Rs 200 crore, given total sales of Rs 10,012 crore in 2011.
Similarly, for Ambuja, 2% royalty charge could mean an outgo of around or upwards of Rs 51 crore, given its April-June sales of Rs 2,566 crore. On an annual basis, it could be around or upwards of Rs 171 crore, given its sales of Rs 8,531 crore in 2011.
Such massive payouts could have serious implications for the two companies’ profitability, one reason the market buzz would not die.
For example, a levy of 1% of total sales may impact the earnings per share (EPS), an indicator of a company’s profitability, by 8-9% for ACC and 6-7% for Ambuja.
The EPS for ACC was Rs 69.29 for 2011 and Rs 8.07 for the quarter ended June; for Ambuja, it was Rs 8.02 and Rs 3.05, respectively.
Yet, an analyst with a leading domestic brokerage firm said: “I have recently interacted with officials of Ambuja. They said no discussion on royalty took place between the Holcim management and them and that there has been no royalty-related communication from Holcim either.”
But industry sources said it is normal for Holcim to collect royalty fees for access to technology, brand and technical support services from its units. Its units in Indonesia and the Philippines, for example, are understood to be paying around 2% of sales in royalty.
“In case of ACC and Ambuja, neither is using the Holcim brand. But it could be that Holcim is providing some technology and support services for which it may levy a charge,” said an analyst from a domestic brokerage. Other sources said ACC and Ambuja are already paying around 0.5% of sales to Holcim for the services of its corporate services group.
A Morgan Stanley study in June 2012 hinted that the two Indian companies may be paying fees to entities wholly owned by Holcim for access to technology, IT implementation, support and knowledge.
This, however, could not be immediately confirmed.
The Morgan Stanley study revealed that Holcim’s Asian subsidiaries pay royalty to their parent through Holcim’s Asian arms. Such payments are categorised under three heads: trademark fees; technology for operation; technical support / IT services and support.
“Interestingly, ACC and Ambuja Cements also currently make payments to these entities (Holcim’s Asian arms that receive royalty payments from Holcim’s other Asian subsidiaries). While the basis and nature of such payments are not defined in the annual report, ACC’s annual report describes them as ‘Payment for Training / Technical Consultancy’,” the Morgan Stanley report had stated.
The report also noted that ACC and Ambuja Cement are strong Indian brands and hence, it is unlikely they would pay any trademark fees.
This story first appeared in DNA Money edition on Tuesday, Oct 16, 2012.
Zee Group, India’s leading media player, has taken yet another pioneering initiative in the television industry by launching the country’s first edutainment television channel for kids.
ZeeQ, the new channel launched by Zee Learn, the BSE-listed educational division of the group, will cater to the education and entertainment needs of children in the 4-14 years age group.
Punit Goenka, MD & CEO, Zee Entertainment Enterprises Ltd, the group flagship, said the new channel is in line with the group’s principle of improving human capital.
“For two decades Zee has been making a difference in the lives of millions, and now ZeeQ will sustain it further. It is a step ahead in fostering curiosity among children through fun and entertainment,” he said, adding that the new channel will have a mix of home produced and acquired content.
ZeeQ’s broadcast operations would be managed by Zee Entertainment and Enterprises Ltd, while Zee Learn will look after the content and channel management.
The 24-hour paid-for channel would be offered across various direct-to-home (DTH) and digital cable platforms across the country from November 5. Pricing and bundling details will be announced closer to the launch date as negotiations with multi-system operators and DTH players are still on, the officials said.
On investment, Navneet Anhal, COO, Zee Learn, said, “Being a new business, significant investment has been made in this channel. We are focusing efforts on market exposure now.”
The programming content has been planned after taking into account Zee Learn’s experiences in running a chain of pre-schools and under Kidzee (over 1,000 centres) and K-12 under Mount Litera Zee School (over 100 centres).
“During the production and acquisition of content, we took into consideration the learnings of Zee Learn from the 18 years of interacting with as many as 300,000 students, parents and teachers across India. This has helped us make the edutainment content engaging and relevant to the needs of Indian children,” said Anhal.
Subhadarshi Tripathi, business head, ZeeQ, said the programming and scheduling approach of ZeeQ’s content is geared to help children with subliminal education while keeping them engaged in never-before edutainment fashion.
“The channel will have 210 minutes (three-and-a-half hours) of live action content and 90 minutes (one-and-a-half hours) of animated content for now. We have also acquired Emmy Award wining shows from across the globe for a period of five years. The feeds of these shows will also be made available in Hindi. The ratio of Hindi to English language programming on the channel will be 70:30. Some proportion of programming on the channel will also be in Hinglish,” said Tripathi.
The advertising market for kids entertainment channels in India is estimated to be around `250 crore growing at 10% year on year.
While the market is fiercely competitive, Zee Learn officials said child edutainment is a completely new space in India with ZeeQ as the only focused Indian player.
“We will be creating a completely new market with the channel,” said Tripathi.
This story first appeared in DNA Money edition on Tuesday, Oct 16, 2012.
French hospitality major Accor has divested a 60% stake in its wholly owned subsidiary Barque Hotels to Samhi Hotels.
Barque has a portfolio of 15 Formule 1 hotel projects, of which two (in Greater Noida and Ahmedabad) are operational and the rest are in various stages of development. By the end of 2013, the group expects to have almost half-a-dozen Formule 1 hotels, with new properties in Pune, Bangalore, Gurgaon and Hyderabad coming on stream.
“The deal is in line with our global strategy of ‘asset-light’ development, which allows us to focus on operating a consistently high quality portfolio of hotels that spans the spectrum from luxury to budget,” said Gaurav Bhushan, chief development and investment officer, Accor Asia-Pacific.
Accor will maintain a 40% stake in the hotels and will continue to operate them under long-term operating agreements.
In a non-exclusive arrangement with Samhi, the French company will also retain the right to own and/or develop further Formule 1 projects in India.
The deal size was not disclosed.
Ashish Jakhanwala, managing director and CEO, Samhi Hotels Pvt Ltd, said, Samhi will invest $40-50 million in Barque Hotels in the next 18 months.
“An entry-level international hotel brand was missing in our portfolio of brands,” said Jakhanwala, pointing out that the segment has huge demand, which Formule 1 can help tap.
He said the ownership structure is likely to remain in the same proportion unless a new structure is devised in future.
According to Jakhanwala, the deal was initiated in February this year.
The approach of Samhi, set up in December 2010, has been to work with multiple hotel brands and already has Courtyard by Marriott and Royal Orchid, Hyatt Place and Fairfield in its portfolio.
Earlier this year, it had acquired BSE-listed Royal Orchid Hotels’ Ahmedabad hotel operated by Royal Orchid Ahmedabad.
The world’s leading hotel operator and market leader in Europe, Accor is present in 92 countries with nearly 3,500 hotels and 4.4 lakh rooms. Besides Formule 1, its portfolio of hotel brands includes Sofitel, Pullman, MGallery, Novotel, Suite Novotel, Mercure, Adagio and ibis.
This story first appeared in DNA Money edition on Wednesday, October 10, 2012.
Private equity (PE) players have said the recommendations of Parthasarathi Shome committee, set up to look into the retrospective tax issue, would remove uncertainty over intra-group restructuring and PE transactions and bring more clarity over post-tax returns.
Subbu Subramaniam N, founding partner, MCap Fund Advisors, said, “In the broader perspective, I think, the government is conveying the message that it cares for international capital by making this reversal of stance.”
As per the draft report on retrospective amendments relating to indirect transfer, PE investors would be outside of the coverage of taxation of indirect transfer where:
(i) the investment by a non-resident investor in a PE fund is in the form of units which do not results in participation in control and management of the fund;
(ii) the investor along with its associates does not have more than 26% share in total capital or voting power of the company,
(iii) the investee company or entity does not have more than 50% assets in India as compared to its global assets;
(iv) the investee company is a listed company on a recognised overseas exchange and its shares are frequently traded,
(v) the transfer of share or interest in a foreign company or entity results due to reorganisation within a group.
“Since there is some predictability about what I will be able to deliver to my investors post-tax, I can now build into my calculations while making investments,” said Subramaniam.
“Whether 5% or 10% tax, no tax, short-term, long-term tax and so on... anything that is prospective will help me to take care of the decisions thereafter, that’s the whole advantage now.”
Industry players said through the earlier amendments the government had sent a message that it did not care for foreign capital, which had compounded the problems of lacklustre returns faced by PE firms.
Amit Maheshwari, partner, Ashok Maheshwary & Associates, Chartered Accountants, said, “By exempting business reorganisations, listed investee companies, or companies having substantial non-Indian assets or investors of PE funds (which invest in units), the Shome committee recommendations will provide much needed respite to the PE industry reeling under low growth, lack of exits and clarity due to the draconian retrospective tax amendments.”
Experts said with the norms bringing in clarity, the overall fund raising is also likely to see a revival.
“If capital is seeking to come to India, it will come directly or indirectly through the funds so that actually will be a derivative benefit,” said a top official of PE fund.
My colleague Nupur Anand is the lead writer of this story appearing in DNA Money edition on Wednesday, October 10, 2012.
Wal-Mart, world’s largest retailer, is likely to tweak its global strategy of setting up huge retail spaces and may go for smaller stores in India, experts said.
Considering the unwillingness of Indian consumers to travel to far-flung areas for shopping, the retailer will have to set up stores within a city, for which huge spaces may not be available or come at huge costs, they said.
“The concept of hypermarkets spread across a huge space may not work in India as the retailer would want to stay closer to the customers. In this scenario, tapping an existing catchment area means there will be no space to set up such huge stores. As a result, retailers are likely to go for small format stores in India, “said Harminder Sahni of Wazir Advisors, a consultancy.
Wal-Mart is known for its hypermarkets, which are generally located on the outskirts of cities and are spread over an area of 100,000 to 260,000 sq ft.
Wal-Mart has a toehold in India through its joint venture with Bharti that runs 17 cash-and-carry stores. Though an announcement for the retail business between the two companies is yet to come, Wal-Mart calls Bharti its “natural partner”.
Experts said under the deal, the stores run by Bharti may come under Wal-Mart’s fold. Currently, Bharti runs over 200 Easyday stores that are spread over a retail space of 3000-25,000 sq ft.
Analysts said Wal-Mart, too, will stick to a similar area and go for a maximum of 50,000 sq ft.
Given the space limitation, the company is likely to tap shopping centres and malls for setting up stores.
Experts said Wal-Mart will take a cue from Easyday and open stores in different formats. Easyday is present in easyday, easyday Market and easyday Hyper categories.
This will not be the first time Wal-Mart would ditch the big box store format. In Mexico, the average size of the Wal-Mart stores is about 5,000 sq ft.
Pushpa Bector, senior vice-president, leasing and mall management, DLF Mall of India said most retailers are now looking for more compact space.
“Hypermarkets that were earlier looking at 100,000 to 150,000 square feet of retail real estate have rationalised their requirements. The number is now down to 55,000 to 60,000 sq ft, which appears to be a more viable approach to business,” said Bector.
Devangshu Dutta of Third Eyesight retail said going forward the company may test the water with a big-box stores.
This means that Indian shoppers would not see much of hypermarket format stores soon.
While a supermarket stocks mainly food and daily use items, hypermarkets sell apparel, electronic, furniture, etc, and have amenities such as fuel stations, eating outlets and pharmacies.
Given the space constraint, the Indian consumers at best will get advanced supermarkets.
The company may also extend this strategy to product mix, focusing on goods that meet the demand of Indian consumers.
Dutta of Third Eyesight said for every company to succeed, it is important that the products are adapted to the local taste.
“It may not be a surprise, considering that Wal-Mart has burnt its fingers in other markets. For instance, both in Mexico and Brazil it took time for the retailer to get the right product mix.”
Experts said Wal-Mart was able to secure number one position in both the countries only after sufficiently localising the product offerings.
This story first appeared in DNA Money edition on Tuesday, October 9, 2012
Several luxury hotel brands are vying for brand and management contract for Oberoi Realty’s upcoming hotel project in upscale Worli in Mumbai.
Hilton’s Waldorf Astoria, Marriott’s Bvlgari and Armani Hotels are understood to be in talks for the hotel, which is currently at a construction stage, an industry source said.
Names of brands such as Mandarin Oriental and St Regis were doing rounds last year.
“Talks are now on with a new set of luxury brands, but the asset owner has not signed with anyone as yet,” said an industry source.
A memorandum of understanding was earlier signed with Mandarin Oriental, “but I think the talks have broken off,” he said.
A senior Oberoi Realty official had said last week that the company was in discussions with international luxury brands, but did not share any names.
A questionnaire emailed to the hotel operators Hilton and Marriott, and Oberoi Realty remained unanswered at the time of going to print.
The Dr Annie Besant Road, Worli, project has been planned asa 3.1 million square feet multi-use development (hotel, commercial and branded serviced residences).
Oberoi Realty was targeting Rs 8,000 crore revenues from the project, a senior company official had said.
The realtor has been trying to finalise hotel-cum-branded residence operator for a while now.
Expected to be a 25-year contract, as per the earlier plan, both the hotel (200 -225 guest rooms) and the branded residence (about 200 apartments) offerings were to be operated and marketed by the same operator.
Industry experts said the residential segment sales that were scheduled for June 2011 have been delayed by over a year now.
The realtor has hired South Korean construction major Samsung Engineering & Construction for this project.
Samsung E&C was also the lead contractor for the world’s tallest tower, Burj Khalifa, in Dubai, which opened in 2010 and houses the Armani Hotel.
This story first appeared in DNA Money edition on Friday, October 05, 2012.
Saket Courtyard Hospitalty has put the Hilton Garden Inn Hotel, its only operational property with a Hilton association, on the block, according to reliable sources.
Saket is the controversial joint venture between the DLF Group, India’s largest real estate player, and Robert Vadra, an entrepreneur married to Priyanka Gandhi.
DLF owns the land on which the 116-room Hilton Garden Inn is built, by virtue of which it is said to have a 50% stake in Saket.
Saket has given an exclusive ‘sale’ mandate relating to the hotel, located in the vibrant shopping and entertainment district of Saket in affluent south Delhi, to an international property consulting (IPC) firm.
Built in November 2009, the mid-market (four-star) hotel boasts dining and meeting rooms, some unique amenities and state-of-the-art facilities.
A DLF spokesperson declined comment. “We do not comment on market speculation.”
But an industry source familiar with the development told DNA, “The IPC firm is currently in the process of running an Expression of Interest (EoI) process. Valuation details have not been finalised yet, but are likely after the receipt of EoIs.”
It is the first hotel in the Asia Pacific region carrying the Hilton Garden Inn brand. Over the years, it is said to have established itself well in its mid-market segment with strong average daily rate and decent occupancy levels. (Single occupancy tariff is priced Rs8,000 to Rs10,000.)
Siddharth Thaker, managing partner, Prognosis Global Consulting, a hospitality-focused advisory, said the Saket property is “a great product” with “good cash flow” and “stable operations” – factors that help it to “generate good revenues despite the overall stressed market situations”.
Should it be put up for sale, Thaker said, the Saket hotel would attract valuations upwards of Rs200 crore as the land value in the area has appreciated significantly over the past few years.
DLF has been trying to exit hospitality calling it a non-core business. In June, it sold its majority stake in Adone Hotels and Hospitality to a Kolkata-based consortium comprising Avani Projects and Square Four Housing and Infrastructure for Rs567 crore.
The realtor has also reportedly found a buyer for its holding in luxury hotel chain Aman Resorts for Rs2,500 crore.
DLF has been saying that the sale proceeds from non-core businesses are being used primarily to reduce debt on its books.
It is not clear if the sale of the Hilton hotel in south Delhi is a prelude to a potential DLF exit fromthe joint venture firm. A few years back, DLF received negative press and considerable attention from opposition parties for extending unsecured loans of more than Rs3.5 crore to Saket Courtyard Hospitality. Alluding to Vadra’s links to political India’s preeminent family, such loans were labelled “sweetheart deals” and “political equity” by bloggers and Twitterati.
An edited version of this story first appeared in DNA Money edition on Saturday, October 06, 2012.
New Delhi-based Carnation Hotels is in discussions with international luxury hotel brands exploring a possible joint venture for their India operations. Once concluded, Carnation will be responsible for managing the day-to-day affairs of these luxury hotels based on the brand owner's global service / quality standards.
Confirming the development, Rattan Keswani, co-promoter and managing director, Carnation Hotels, said, "Two international luxury brands wish to engage our company as a joint venture (JV) partner to operate their hotels in the region." He did not share names as the discussions were still on with the foreign hotel brands.
A newly instituted hotel management company, Carnation Hotels (P) Ltd is co-promoted by Rattan Keswani, the erstwhile president of Trident Hotels (Oberoi Group) with Patu Keswani's Lemon Tree Hotels as majority shareholder.
The company was set up as part of Lemon Tree's business restructuring exercise to separate hotel asset ownership and management. To this effect, Carnation will now manage hotels with either Lemon Tree brands i.e. Lemon Tree Premier, Lemon Tree or Red Fox provided the hotels fit the brand architecture and efficiencies or under separate brands.
"For hotels that don’t fit in, we are creating a new brand portfolio for the upscale and mid-scale segments. We shall be able to share details of the new brands in about a month more," said Keswani.
Operational for almost a quarter now, Carnation recently signed its first management contract for a resort in Himachal Pradesh. The company is in active negotiations with 10 other owners / projects for management contracts. "We signed our first resort last week and hope to close two more in the next fortnight. We hope to have over 2,500 rooms under management within the next 18 months. The overall plan is to manage over 4,000 guest rooms by 2015," said Keswani adding the company would consider taking equity positions (with asset owning companies) on a case to case basis.
Supported by the bandwidth of Lemon Tree's corporate structure, Carnation has also got on board hospitality professionals from across functions having experience with hotels chains like Four Seasons, Alila, Taj , Starwood, InterContinental and Marriott . "They will assist and manage the hotels within the brands assigned. And should the luxury brand JVs fructify, we shall enhance the team as needed," said Keswani.
The common structure supporting Carnation Hotels is expected to undergo some change as expansion happens in the coming years. While the present structure can support an addition of up to 1,000 guest rooms under management, the company foresees senior executives moving into leadership roles after new brands are structured.
On what differentiates Carnation's approach to hotels business vis-a-vis existing domestic and international players already operating in the country, Keswani said, the company will bring the best expertise between luxury and mid-scale under one roof-with professionals who have successfully delivered in India.
"The Indian customer shall be our focus different from other international and domestic players. We will leverage expertise to relate luxury with economies/efficiencies thereby delivering the best return on capital employed (ROCE). We build better, quicker and cheaper with better ROCEs than our competitors. We have done that for owned hotels under the various Lemon Tree brands and should be able to deliver similar results for other owners as well," he said.
This story first appeared in DNA Money edition on Thursday, October 04, 2012.
Two factors have revived the hopes of battered realty players: green signal for up to 49% FDI in multi-brand retail and high chance of interest rates falling.
While FDI is expected to stir demand for commercial space, any lower interest rates would reignite demand for homes. While actual creation of retail space may take 1-2 years, FDI news is a sentiment booster, said experts.
“FDI in retail will bring about a new approach to building retail spaces, just as the entry of firms such as IBM and Intel led to new architectural designs and world-class workplaces in India a few years back,” said Raja Kaushal, MD and India head of BNP Paribas Real Estate Advisory.
Better liquidity and lower mortgage rates are also creating sector tailwinds, said Puneet Jain and Aditya Soman, analysts at Goldman Sachs India, in a recent report. (mortgage rates have fallen 50 bps in the last six months.)
Sandipan Pal, analyst at Motilal Oswal Securities, said, “Favourable global liquidity, rising expectations of fiscal correction, 25 bps cut in CRR and likely interest rate downcycle are all positives.”
Given that several retail investors are struggling to service their home loans, interest rates are expected to fall, said Kaushal. His talks with banks and housing finance firms indicate that defaults among borrowers on equated monthly installments (EMIs) are up.
“From one in 2-3 years, defaults now happen within a year’s time. Job uncertainties and economic slowdown are worsening matters,” he said.
The current mortgage rates at 10.25-10.75% are at the higher end of the 7-11% range over the last ten years. Banks are keen to improve their loan books. A possible 150 bps drop in interest rates could result in EMIs for a Rs1 lakh loan drop from Rs1,032 a month to Rs932 a month for a 20-year loan, said experts.
Since up to 80% of home buyers take loans, and given the high loan-to-value ratios, banks have to go to the smaller towns and aggressively target home buyers in the Rs20- 40 lakh bracket, or reduce rates and improve their loan quality, said observers.
“Many people are yet to buy their first home. So interest rates will have to come down at least for them,” said Kaushal. Two-way pricing of loans where second and third home buyers pay a higher rate is also desirable, he said.
For, declining sales, liquidity concerns and mounting debts had led to shelved or delayed projects over the last three quarters, savaging realty firms.
The recent macro trends, however, will benefit companies such as DLF in terms of improving operating leverage and financial de-leveraging, analysts said.
Another reform area could be construction finance. “With demand slack, they sought financing. But lenders know such mega projects will take 10-12 years to complete whereas they want their money back in 3-5 years. So projects need to be phased,” said Kaushal.
Any fall in interest rates would revive buying and selling of residential apartments. This will help narrow the big gap of 5-7 years in real estate project financing. More and more lending will start to happen from mezzanine funds and state-owned banks,” said Kaushal.
Thus, any cut in lending rates would benefit property big boys such as DLF, HDIL, Godrej Properties and Unitech. Goldman Sachs analysts foresee a 50-100 bps cut in construction finance rates on account of better liquidity.
This story first appeared in DNA Money edition on Saturday, October 06, 2012.
With the November 1 (extended) deadline for the first phase of the
switchover from analogue to digital cable television (CTV) fast
approaching, multi system operators (MSOs), led by Siti Cable Network
(formerly Wire and Wireless), are going all out to ensure its effective
implementation in the four metros.
Siti has executed digital addressable system (DAS) interconnect
agreements with 55% of its local cable operators (LCOs), which will
allow the latter to provide encrypted TV signals to subscribers, said
Anil Malhotra, its COO. “We are engaging the LCOs for a smooth migration
to the digital regime.”
MSOs aggregate channels of various
broadcasters and supply them to LCOs for delivery to end-users
(viewers/subscribers). Typically, a broadcaster offers a fee – carriage
revenue – to MSOs for ‘carrying’ its content on their networks.
“Siti’s
decision to offer 25% of its carriage revenue to LCOs has been very
well received. LCOs are enthusiastic about implementing the digital
switchover,” said an analyst with a leading domestic brokerage.
In
June, the Telecom Regulatory Authority of India (Trai) had extended the
deadline to November 1 at the request of the industry representatives.
Yet, the short extension has not really led the C&S industry to
expedite the process. Barring Siti, MSOs have been sluggish in executing
interconnect agreement with LCOs, sources said.
In contrast, Siti
introduced ‘Own Your Subscriber Management System’ designed specially
for LCOs, facilitating the latter to handle subscriber-related
transactions on their own. Beneficiaries of the SMS system are looking
forward to handling tasks like activation, deactivation, upgradation,
downgradation, billing, payments, account statements, packaging and
complaints, sources said.
The SMS system can be accessed by the cable operator on mobile phone, tablets, personal computer (desktop/ laptop). “Such
systems empower the local cable operator. It will help him to provide
better and prompt services to his subscribers on the digital platform,”
said Siti’s Malhotra.
Siti has 56 analogue and 14 digital
head-ends and a network of more than 12,000 km of optical fibre and
coaxial cable. The company provides its cable services in India’s 60 key
cities and the adjoining areas, reaching over ten million viewers.
