Aman gives fillip to DLF debt-cut plan

This story first appeared in DNA Money edition on Friday, Aug 16, 2013.

Despite slowdown in the hospitality business, Aman Resorts, realty major DLF’s hospitality chain, has seen significant improvement in both operations and perceived valuation, lifting the parent’s hopes of selling Aman profitably and cut its own heavy debt.

In fact, the hotels business has contributed Rs 10.4 crore to DLF’s first quarter consolidated net profit of Rs 181 crore, a turnaround from loss-ridden quarters of last fiscal.

In an earnings call, Ashok Tyagi, group CFO, DLF, cited improved operations and better foreign exchange translation as key reasons for Aman operations turning profitable.

To divest non-core assets and reduce debt, DLF agreed to sell the Aman Resorts portfolio (excluding Aman Hotel, Delhi) back to its founder Adrian Zecha for $300 million.

Zecha was, however, not able to arrange the funds in time, leading to expiry of the exclusivity period in June. The DLF management later initiated discussions with a few other buyers even as Zecha remains in the fray.

Tyagi said the company was confident of closing the Aman Resorts deal soon and that the transaction will be value-accretive compared to its earlier valuations.

Saurabh Chawla, ED-finance, DLF, said, the hotel business will likely post an Ebitda number of $20 million this fiscal on the back of  “an exceptionally good January-June period” and given that the group is “slated to open four properties across the globe”.

The DLF management will be expecting increase in the valuation of Aman Resorts, considering that new hotels / resorts in international markets like Italy, China, Vietnam and Jordan will be added to its portfolio, and the business has also started generating profits.

Cox & Kings expects windfall from Rupee fall

This story first appeared in DNA Money edition on Friday, Aug 16, 2013.

Travel and tour operator Cox & Kings said it is expecting to benefit in a big way from the depreciating rupee, which has cut costs for inbound tourists.

Peter Kerkar, Group CEO, Cox & Kings, said, “The benefit of rupee decline helps us because a large percentage of our revenues is in foreign currency. The initial signs are showing travel to India should certainly become more attractive.”

While the gains were not reflected in the first quarter results, company officials said the real fall in rupee against dollar came in June and hence the impact will be visible in the upcoming quarters.

With the Indian travel, tourism and hospitality sectors set to enter the peak season from October, industry players are gung-ho on the prospects.

“India is finally looking affordable from a global perspective. We are hoping that our last two quarters of the current fiscal — when our international offices send business to India as well as the incoming traffic into the country — should be boosted by this current situation,” Kerkar said in an recent earnings call.

On the other hand, Anil Khandelwal, CFO, Cox & Kings, said the company hasn’t seen any slowdown in terms of leisure holidays.

“People will continue with their travel plans irrespective of depreciating rupee against the dollar. That’s because, people basically keep a budget for travel in their mind and plan their holidays accordingly,” said Khandelwal.

According to Union tourism ministry, foreign tourist arrivals were up by 1.9% to 12.8 lakh despite April-June quarter being a lean season.

Wockhardt says one more unit under FDA scanner

This story first appeared in DNA Money edition on Thursday, Aug 15, 2013.

Pharma major Wockhardt’s regulatory troubles over its manufacturing facilities do not seem to end.

After its Waluj unit in Aurangabad,  foreign regulators have  expressed concerns over its the largest revenue contributing unit of Chikalthana in the same district.

According to a senior Wockhardt official, both US Food and Drug Administration (FDA) and the UK Medicines and Healthcare Products Regulatory Agency (MHRA) had conducted inspections at its Chikalthana, Shendra and Waluj Cephalosporin plants in July.

“The Chikalthana plant was jointly inspected by USFDA and MHRA in the last week of July and they have raised observations. We have 483s, some of them are more serious and some are minor in nature. We are reviewing all the questions and observations and will respond to the FDA next week,” the official said on an earnings call.

No critical observations were recorded by the MHRI for Wockhardt’s Shendra plant that caters to the UK, Irish and the US markets. The USFDA is expected to inspect the Shendra facility next month. The inspections by the regulators at its Waluj Cephalosporin plant were satisfactory, said the official.

For fiscal 2013, the Chikalthana facility contributed $230 million to the company’s sales.

India Cements cuts capex to Rs 250 crore

This story first appeared in DNA Money edition on Wednesday, Aug 14, 2013.

India Cements has cut its capital expenditure plan of Rs 300 crore by Rs 50 crore, company officials said on a recent earnings call.

“The company’s current gross debt stands at Rs 3,230 crore and the company doesn’t intend to spend on capacity expansion in fiscal 2014. However, it may look at expansion over the next 2-3 years,” Mihir Jhaveri and Prateek Kumar, analysts at Religare Institutional Research, said in a company note on Monday.

The capex in this fiscal would largely be spent towards maintenance and some debt reduction.

In the first quarter, India Cements spent towards capex of Rs 60 crore, while it was Rs 530 crore for the entire last fiscal.

The company’s profitability was hit due to weak realisation despite its industry leading volume take-off in Q1. The company’s sales increased 3% on-year to Rs 1,240 crore, but its operating profit and net profit declined 31% and 59% yoy to Rs 193 crore and Rs 43.9 crore, respectively.

Rajesh Kumar Ravi, analyst, Karvy Stock Broking, said in his company note said while sales volume rose 11% yoy (as compared with industry growth of 3-4%), the company’s net realisation declined 1% quarter on quarter and 6% yoy.

“This was despite cement price improvement in Andhra Pradesh market during later part of the first quarter. Net realisation decline (3% below our estimate) resulted in Ebitda decline of 31% yoy (versus our estimate of 19% decline) and adjusted net profit decline of 59% yoy (versus our estimate of 39% decline).”

Eros to finalise NYSE IPO by August-end

This story first appeared in DNA Money edition on Wednesday, Aug 14, 2013.

Eros International, a leading global media and entertainment company, is likely to finalise its New York Stock Exchange (NYSE) listing plan by this month-end.

The company had filed for an initial public offering (IPO) for $250 million with the US Securities and Exchange Commission in March last year.

Eros International has a BSE-listed subsidiary / associate company called Eros International Media (EIML). The latter’s officials could not be reached for comment.

An industry source, however, said EIML is very likely to disclose the NYSE listing details at its annual general meeting on August 28.

In another development, EIML has partnered with YM Movies of music luminary A R Rahman to produce a Hindi feature film which will mark the latter’s debut as a film producer.

“It is a 16-year relationship with Eros and this time it is extending the role a bit more. It is about exploring the other side of creative partnership,” said Rahman in a statement.

The yet-to-be-titled film has been conceived and written by Rahman with help from international and local talent and will celebrate youth’s sensual love, art and self-discovery.

IHCL sees room rates rising in Oct

This story first appeared in DNA Money edition on Tuesday, Aug 13, 2013.

Indian Hotels Co Ltd (IHCL), the Tata group hospitality flagship, has reported a 42.42% decline in consolidated net loss at Rs19 crore in the first quarter fiscal 2014 over corresponding quarter last year. Total income from operations during the April-June quarter was 7% higher at Rs908 crore on year.

Anil P Goel, executive director-finance, IHCL, said the company saw an occupancy of 59% across the portfolio of hotels in India. “The average room rate (ARR) for the quarter at Rs8,300 was slightly lower as compared with the last year.

Operating margins, at 11%, were in line with last year. We have been able to bring down financing costs by 23% over the previous fiscal,” he said.

With the Indian hospitality set to enter the business season in the next 45 days, the company is hopeful of marginally increasing the room rates.

Deepa Misra, senior vice president–sales and marketing, IHCL, said there has been an overall 20% increase in supply of hotel rooms during April–June, 2013 over last year.

“Most of the new supply (about 69%), has come in the upper upscale, upscale and midscale segments and 28% in luxury (largely Chennai and Hyderabad). Demand growth has been 17% for this period. However it is still trailing supply growth by 3% which has had an impact on the hotel industry occupancy and average room rates (ARRs),” she said.

On the international business front, Goel said the portfolio has performed very well with all the three hotels in the US reporting encouraging results in the first quarter.

“Both Boston ($300 - ARR) and San Francisco ($300 - ARR) have touched 80% occupancy while it is 77% at The Pierre ($640 - ARR) against 65% last year. We will be looking to increase the ARRs in these markets.

“The UK market has been quite stable, Maldives is likely to stabilise by the time we get into the business season, hotels in Sri Lanka, Malaysia, Bhutan and Sydney are doing fine as well,” said Goel.

As of August 2013, the company has a total inventory of 14,506 rooms. In the current fiscal, IHCL will add 12 hotels (mainly through management contracts) and inventory of 1,575 rooms.

Dish TV plans domestic sourcing of set-top boxes to offset rupee drop

This story first appeared in DNA Money edition on Monday, Aug 12, 2013.

Dish TV, India’s top direct-to-home (DTH) operator, is considering domestic sourcing of digital set-top-boxes (STBs) to offset rising costs due to rupee depreciation.

A flagging rupee has been an industry-wide concern for a while now, calling for efforts to control the related impact on business, the company’s top official said.

Jawahar Goel, managing director, Dish TV India, said on a recent analyst call, “Given the depreciating rupee, we are evaluating possibilities for improvement in hardware economics of consumer premises equipment (CPE) sourced from India. We have also been considering options with our overseas suppliers to commence production at a base in India.”

Last month, Dish TV had taken a price hike of `250 per STB to bridge the widening gap between cost of CPE and the amount realised from the customer.

Other DTH players such as Tata Sky, Airtel Digital and Reliance Digital followed suit by increasing prices broadly in the same range.

Also, in this year’s Budget, Union finance minister P Chidambaram had hiked customs duty on imported STBs from 5% to 10%. Considering there aren’t many domestic manufacturers of STBs for the digital cable and DTH sectors, the government’s decision to make imported STBs expensive was seen as a move to incentivise domestic manufacturing and bringing more players in the market.

Among the few local STB manufacturers are Noida-based Dixon Technologies, Kortek Electronics and Videocon Industries. International players including Hampshire-based Exset are understood to be exploring tie-ups with Indian manufacturers to produce STBs here.

Industry experts said Dish TV’s move to source STBs locally may be followed by other players, experts said.

“We have a hunch that in the near future there can be a higher duty on import, because of the balance of payment issues. In fact, we have already alerted our vendors to set up shop, to convert and produce the STBs locally. We are not buying new STBs for next 3-4 months as we have enough stock. And by that time the vendors are likely set up shop in India,” said Goel.

Dish TV currently has an inventory of 1.4 million STBs and another 0.6 million with the channel partners. At `60 a dollar, the total cost of the CPE, company officials said, is close to `2,700 for a standard definition set. DTH players have been offering STBs at a subsidised cost to attract subscribers but are gradually expected to move towards a zero-subsidy model by increasing prices. Commenting on the possibilities, R C Venkateish, CEO, Dish TV India, said,

“We are moving towards elimination of subsidies in the next one to two years. So certainly a combination of efforts to reduce costs as well as increase prices will be used. Local manufacturing will play a crucial role towards this. While it is not a very big chunk, even a couple of hundred rupees of savings will go further towards reduction of subsidies.”

He said the company is focused on increasing value delivery to the customer and is coming up with innovations. “New products will be introduced in the second half, which will further position us separate from cable,” he said.

Lupin sets up R&D in US, ropes in Teva, Sandoz executives

This story first appeared in DNA Money edition on Saturday, Aug 10, 2013.

Lupin, the country’s third largest pharmaceutical company, has just begun setting up a research and development (R&D) centre in the US, but the R&D head of Teva Pharmaceuticals and another top official from Sandoz, the generic pharmaceuticals division of global industry leader Novartis, are on board already.

Lupin is identifying other key officials and expects to get the R&D centre operational around August next year.

Vinita Gupta, CEO of Lupin, said the company started working on the US R&D project six months ago. “It’s a work in progress. We are attracting top-notch research and business development talents for this facility. Some key officials have come on board in the last quarter and they are working on putting together plans and partnerships. Our goal is to get the products in the respiratory and dermatology segments into the market as soon as possible.”

Another reason for the R&D unit in the US, she said, is that it “help us to undertake research of controlled substances, something we can’t do outside of the US because of their import barriers”.

On an average, the company spends 7.5-8% of its net sales on R&D. Last fiscal, it spent Rs 709.80 crore. Some 9% of Lupin’s 13,000 staff worldwide are in the R&D space.

Desh Bandhu Gupta, founder and chairman of Lupin, said, “We’ve been learning a lot from our domestic R&D centres. The US facility will add to this overall learning and the drug discovery process.”

Lupin has invested Rs 2,778 crore in the last six years in R&D. It has two R&D centres in India: Lupin Bioresearch Centre in Pune, a centralised set-up with 1,400 scientists,  and Lupin Research Park in Aurangabad, a smaller facility with 50-60 employees. The Pune centre’s biotechnology group has already received its first marketing authorisation for an oncology product. It received milestone payment of $6.5 million for two products being jointly developed with Medicis Pharmaceutical Corporation.

The centre is conducting bioequivalence studies for its generic products and branded formulations, and has completed 19 full studies last fiscal, taking the overall tally to 83. It filed for 157 new patents last fiscal, taking the overall total to 1,181.

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.