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.

PVR Q1 net soars 79%

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

Multiplex chain operator PVR posted a 79% on-year increase in consolidated first quarter (Q1, April-June) net profit at Rs 13.9 crore driven by strong box-office sales, sale of  food and beverages (F&B) at its cinemas and revenue from on-screen advertisements.

Consolidated Q1 revenues were up 87% on-year at Rs 337.3 crore, while operating profit or Ebitda was up by 78% at Rs 61.4 crore.

Ajay Bijli, CMD of PVR, said integration of PVR and Cinemax is progressing well and the company management is focusing on drawing synergies from the combined scale of operations. This is already reflecting in PVR’s market share and financials.

The company’s film exhibition business showed a stellar Q1 growth on the back of strong same-store growth, addition of new multiplex properties as well as Cinemax multiplex circuit (post acquisition in January 2013). During Q1, PVR clocked 15.2 million footfalls at its cinemas, up  17% on-year.

Low volumes squeeze UltraTech Q1 profit 13.5%

This story first appeared in DNA Money edition on Tuesday, July 30, 2013.

UltraTech Cements, the country’s biggest cement producer, posted a 13.5% on-year decline in its first quarter (Q1, April-June) net profit at Rs 673 crore, due to slowdown in home building and infrastructure projects.

The Aditya Birla group company’s Q1 net sales fell 2.2% on-year to Rs 4,958 crore. Net turnover last fiscal rose 10% on-year to Rs 20,018 crore, while net profit stood at Rs 2,655 crore (Rs 2,446 crore the previous fiscal).

Kumar Mangalam Birla (pictured), chairman of the group, said business environment continues to be challenging. “Despite adverse market conditions, the company has done well. We foresee cement demand growth to be about 6% this fiscal. However, it is likely to be over 8% in the long term.”

Addressing shareholders at UltraTech’s 13th annual general meeting, Birla said last week’s Holcim-Ambuja-ACC will not intensify competition. For, Ambuja-ACC can together produce 58 million tonne per annum (mtpa) while UltraTech’s capacity is just a tad lower at 53.90 mtpa, including 3 mtpa overseas.

UltraTech’s CFO K C Birla said while April and May saw a 5.8% growth in demand, June saw only  around 1% growth.

UltraTech has earmarked Rs 13,700 crore for capital expenditure (capex) this fiscal, to be funded through internal accruals and debt in equal proportion. It also allocated Rs 2,100 crore for setting up grinding units, ready mix concrete plants and for modernisation. The company plans to increase cement manufacturing capacity by 10 million tonne to 64.45 million tonne by 2015.

Subscriptions, Arpu lift Dish TV revenues

This story first appeared in DNA Money edition on Saturday, July 27, 2013.

Dish TV, India’s leading direct-to-home (DTH) service provider, reported an 11.2% on-year increase in standalone operating revenues at Rs 578.4 crore for the first quarter as subscription revenues grew 15.9% to Rs 528 crore and average revenue per user (Arpu) rose 5.1% to Rs 165 a month.

Subhash Chandra, chairman, Dish TV India Ltd, said the company’s focus on quality additions is a counter-intuitive move, which has started delivering encouraging results. “The first quarter saw the company deliver strong free cash flows while maintaining healthy customer retention and investing in brand equity.”

With 0.2 million subscriber additions at the end of the June quarter, the company’s subscriber addition cost was down from Rs 1,996 to Rs 1,828 on a sequential basis. Earnings before interest, tax, depreciation and amortisation at Rs 121.7 crore was marginally higher than the previous quarter, while Ebitda margin for quarter stood at 21%.

Jawahar Goel, MD, Dish TV, said business performance was in line with expectations and that hike in pack prices and improved subscriber quality in the recent months resulted in a strengthened Arpu.

At Rs 30.4 crore, Dish TV narrowed down losses both year-on-year (Rs 32.3 crore) and sequentially (Rs 43.6 crore).

R C Venkateish, CEO, Dish TV India, pointed out that the business requires continued capital expenditure. “The most important matrix that shows the health of the organisation is the free cash flow and we are focused on getting that matrix in shape. And if you look at the whole of last year we generated Rs 65 crore in FCF and the number is Rs 48.4 crore in the first quarter of the current fiscal itself. And this is without sacrificing any growth numbers as we are growing over 6% quarter-on-quarter,” he said.

On Dish TV’s overseas ventures, Goel said, “Work on Dish TV Lanka (Pvt) Ltd, the company’s subsidiary, is progressing as per plan. Since it is going to be a zero subsidy model, it makes us all the more excited about the expansion.”

Focusing on strengthening the balance sheet, the Dish TV management is looking to retire a significant portion of its outstanding debt. The company, through its internal accruals, will look to repay approximately Rs 750 crore of outstanding debt through the current fiscal.

The analyst community has given a huge thumbs-up to the stock with the majority having a ‘buy’ call.

Raw deal for minority shareholders in Holcim deal

This story first appeared in DNA Money edition on Friday, July 26, 2013.

Stock market analysts’ verdict on Wednesday’s Ambuja-ACC-Holcim restructuring is emphatic that the deal offers no significant near-term benefits to minority shareholders.

Downgraded by several brokerages, the Ambuja Cements stock fell almost 15% in intra-day trade in Mumbai on Thursday, before recovering a bit to close at Rs 171, down 10.52%. ACC, too, fell and ended at Rs 1,194.10 (down 3%).

Investors did not seem to like Ambuja’s plan to buy a 50% stake in ACC from its parent Holcim at what could prove a significant premium, given the Rs 14,660 crore value of the cash-and-equity deal (which would also raise Holcim’s stake in Ambuja to 61.39% from 50.55%).

Out of 24 brokerages polled by Bloomberg, as many as 13 stamped a ‘sell’ call on the Ambuja stock; four brokerages advised investors to ‘hold’; two each were ‘neutral’ and ‘underweight’; while one each issued ‘underperform’ and ‘outperform’ ratings.

Chockalingam Narayanan and Manish Saxena, research analysts at Deutsche Bank, said in their report that Holcim has effectively shifted its stake in its India business by gaining a greater proportion of a more profitable business and Rs 3,500 crore in cash. “Our calculation suggests that at the current market price, the loss for minority shareholders of Ambuja may vary between Rs 400 crore to Rs 500 crore from this transaction.”  Their report issued a ‘sell’ call on both Ambuja and ACC stocks.

Holcim has restricted minority shareholders’ choice by using Ambuja’s cash for ACC’s stake, said Anubhav Aggarwal and Chunky Shah, research analysts with Credit Suisse.

“The cash could have been used alternatively for a buyback. Additionally, Ambuja has committed to acquire an additional 10% stake in ACC over 24 months. In our view, this will convert Ambuja into a net debt company; and from a Holcim perspective, it will be an idle structure as ACC plus Ambuja will be neutral on cash on a consolidated basis and shield Holcim from further rupee depreciation,” they said in a report.

Experts feel that Holcim is the only beneficiary of the proposed restructuring as it stands to pocket $600 million in cash whereas in the old structure, it was entitled to only 50% of Ambuja cash. The cash will help Holcim to reduce its net debt and maintain its investment grade rating, which is essential for keeping its interest costs low.

Calling it a one-sided transaction, Nitin Bhasin and Achint Bhagat, research analysts at Ambit Capital, said Ambuja’s acquisition of ACC will have no meaningful benefits except to Holcim. “This rearrangement does not suggest any value creation for either Ambuja or ACC shareholders and at best is value-neutral for Ambuja’s shareholders, considering the synergies. Holcim benefits by receiving Rs 3,500 crore without sharing any cash with minority shareholders,” said the analysts.

The proposed transaction at current market price (CMP) for both entities implies a valuation of $110 per tonne for ACC. Ankur Kulshrestha, research analyst, HDFC Securities, said that despite inexpensive valuation, majority shareholders of both ACC and Ambuja would end up losing in the deal. “We are very sceptical of the synergies (Rs 900 crore in cost savings over two years) being talked about,” Kulshrestha said in his report.

The primary cause for concern, analysts said, is that Ambuja chose to pay moderate dividends (35-40% payout) over the last few years without reinvesting for growth. And the company is now paying the price by losing market share. “We wonder why this transaction did not involve only shares or why the cash was also not distributed to minority shareholders,” the Ambit Capital analysts noted in their report.

Analysts said there are concerns about reinvestment highlighted by Holcim. For instance, Ambuja has not been reinvesting in capacity expansions despite its large cash pile. It invested capex of Rs 2,000 crore over the last three years and added only 2 million tonne of grinding capacity alongside maintenance capex.

Zee net up 43% on strong ad, subscription revenues

This story first appeared in DNA Money edition on Friday, Jul 26, 2013.

Zee Entertainment Enterprises on Thursday reported a 42.6% year-on-year growth in net profit at Rs 223.9 crore for the quarter ended June as advertising and subscription revenues surged.

Advertising and subscription revenues were up 18.5% and 16.5% at Rs 530.1 crore and Rs 424.1 crore, respectively.

Subhash Chandra, chairman, Zee Group, said the company’s performance reflects the investments it is making to grow its business and market share.

“This has been accompanied by a strong improvement in the operating performance of the company during the quarter,” he said.

Operating profit, or earnings before interest, tax, depreciation and amortisation (Ebitda), for the quarter rose 25% to Rs 291.5 crore, riding on a 15.5% jump in consolidated operating revenues to Rs 973.3 crore. The Ebitda and PAT margins stood at 29.9% and 23%, respectively.

Chandra said Zee continues to build its media assets despite being in a highly competitive space and in the process creates value for shareholders. “We have a strong balance sheet and I am confident that we would take advantage of the growth opportunities ahead of us.”

On the overall media and entertainment industry scenario, Puneet Goenka, MD and CEO, Zee Entertainment, said the fiscal has started with a good quarter both on operating and financial parameters. “These are exciting times and we are witnessing a lot of changes in the industry landscape. The phased implementation of Trai’s regulation with respect to advertising inventory on a clock-hour basis has started and is expected to be fully in place by the end of second quarter,” he said.

On the corporate side, Zee shareholders passed a special resolution approving enhancement of foreign institutional investor investments limit in the company beyond the current limit of 49% up to the maximum sectoral limit allowed under applicable foreign direct investment regulations.

Wockhardt tanks after FDA, downgrades hit

This story first appeared in DNA Money edition on Thursday, Jul 25, 2013.

Pharma major Wockhardt’s shares tanked 20% to Rs 660.90 on BSE on Wednesday as some brokerages downgraded the stock in response to manufacturing quality concerns expressed by foreign regulators.

Wednesday’s nosedive marks an extension of the recent downtrend in Wockhardt’s shares. Over the last three months, the stock underwent a massive correction of 65.44% from the high of Rs 1,912.3 on April 25.

The hammering on the bourses has eroded investors’ wealth by a whopping Rs 13,767 crore: from Rs 21,038 crore on April 25, it is now down to Rs 7,271 crore.

Trouble came from a series of import alerts and warnings from overseas regulators such as the US Food and Drug Administration (FDA) and the UK Medicines and Healthcare Products Regulatory Agency (MHRA) about Wockhardt’s Waluj manufacturing facility in Aurangabad, Maharashtra.

Last week, the FDA followed up its May import alert to the Waluj unit with a warning. Wockhardt said the warning is merely a formal communication, and kept its earlier estimate of $100 million impact on sales this fiscal unchanged.

But the road ahead is likely to get tougher for the Habil Khorakiwala-promoted drug-maker, market observers said.

A  review of the FDA warning of July 18 suggests that Wockhardt’s Waluj unit has been charged with six grave violations of current good manufacturing practices (CGMP) for finished pharmaceuticals.

The FDA alleged that Wockhardt officials not only withheld truthful information but delayed and limited its inspection. Worse, Wockhardt’s response to clarifications sought were not satisfactory, the FDA said.

Wockhardt has time till the first week of August to notify the FDA of the specific steps taken to correct and prevent recurrence of CGMP violations.

Murtaza Khorakiwala, MD of Wockhardt, said the company has already initiated the process of taking corrective measures, including appointment of a leading US-based consultant for its Waluj facility. “The consultant has extensive experience and expertise in CGMP and will work with the Wockhardt team to address issues raised by the FDA,” he said.

ACC becomes Ambuja Cements arm

This story first appeared in DNA Money edition on Thursday, July 25, 2013.

In an inter-group restructuring move, Switzerland-based Holcim Ltd is increasing its holding in Ambuja Cements to 61.39% from 50.55%.

In turn, Ambuja Cements will acquire its holding company Holcim India Pvt Ltd’s 50.01 stake in ACC Ltd.

In a two-step transaction, Ambuja Cements will acquire 24% stake in Holcim India from Holderind Investments Ltd, Mauritius (Holcim) for a cash consideration of Rs 3,500 crore. This will be followed by a merger of Holcim India into Ambuja and as consideration for the merger, Ambuja will issue 58.4 crore new equity shares to Holcim at the prevailing market price.

The merger of Holcim India would be in the ratio of one Ambuja Cement share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share.

Ambuja shares closed nearly 3% lower at Rs 191.1 on BSE, while ACC lost 1.16% to Rs 1,231 apiece on Wednesday.

Onne Van Der Weijde, managing director, Ambuja, said the transaction will increase profitability and facilitate more flexible use of capital. “Both companies will significantly benefit from a closer collaboration to be ready to embark on the next phase of growth and optimisation. Together we’ll drive increased realisation of synergy potential and save on costs,” Weijde said in a conference call late on Wednesday.

The synergy potential between Ambuja and ACC is likely to bring in cost savings to the tune of Rs 900 crore through supply chain and fixed cost optimisation.

This will be realised in a phased manner over two years post completion of the transaction.

The total deal value (cash and issue of share) is expected to be Rs 14,660 crore. Funding the cash component will be done through cash on books as payments to Holcim are to be made over a period of nine months.

Post the transaction, Holcim will own all its investments in ACC through Ambuja Cements.

“The transaction is expected to be neutral on Holcim’s EPS in the first full year following the completion of the transaction and accretive thereafter,” said Holcim CEO Bernard Fontana.

Weijde asserted that two companies will continue to function the way they have been in the past. The two brands will be retained and so will be the management team, separate retailer and dealer network.

Ambuja will be looking to increase its stake in ACC within the next three years.
Weijde confirmed that the company has clear intentions of doing so and a proposal to this effect has been approved by the board already.

“We will make commercially reasonable efforts to invest up to Rs 3,000 crore to acquire an economic ownership in ACC of up to 10% without triggering a mandatory open offer,” he said. However, Weijde denied any possibilities of delisting ACC anytime in the near or distant future.

According to Narotam Sekhsaria, non-executive chairman, Ambuja and ACC, “This transaction allows us to capitalise on the prevailing Holcim Group platform, promotes greater co-operation between the group companies, and unlocks significant synergies over time. Investment in the expansion project at Marwar Mundwa is a positive and big next step forward and shows Holcim’s commitment.”

The consolidation will result into a more balanced pan-India footprint with 58 million tpa capacity. Both companies will continue with their expansion plans of over 10 million tpa capacity with additional projects in the pipeline (e.g. ACC Ametha / Tikaria). As part of its long-term commitment in the Indian market, investment will be made by Holcim in Marwar Mundwa project with an overall capacity of 4.5 million tpa in North-Central India.

Ambuja will hold an extra-ordinary general meeting in the December quarter to approve the transaction and will complete the process of merger by mid next year.

Thomas Cook to sell SoBo property

This story first appeared in DNA Money edition on Wednesday, Jul 24, 2013

Travel and tour operator Thomas Cook India (TCIL) has put one of its back office premises at Nariman Point in south Mumbai (nicknamed SoBo for South Bombay) on the block.

The move is part of consolidation of TCIL’s workplaces.

Madhavan Menon, MD of TCIL, said the company consistently optimises and consolidates workplaces. “Given our growth and expansion plans, our Nariman Point back office offers limited scope. Hence our search for alternative space.

This also offers us an opportunity to explore new potential in this domain, including significant new office space in key emerging micro markets in proximity to our customers.”

TCIL declined to share valuation details for its proposed sale.

TCIL’s SoBo premises, fully furnished, with carpet space of 10,591 square feet (958 square metre), and close to the iconic Oberoi and Trident Hotels, will be disposed of on as-is-where-is basis.

As per JLL’s latest monthly real estate monitor, prime Mumbai office space could cost anywhere between Rs 21,000 and Rs 30,000 per sq foot, much costlier than similar spaces in cities like Hyderabad where the going rate is Rs 5,500-6,000 per sq foot. In Pune, it is Rs 4,750-5,000; in Kolkata, around Rs 18,000; in Delhi, around Rs 31,500.

TCIL’s SoBo back office is likely to fetch anywhere between Rs 23 crore and Rs 32 crore.

TCIL is understood to own around 32 properties or 1.26 lakh square feet (sq ft) of office space across the country. In addition, it reportedly owns over 60,000 sq ft and 43,000 sq ft in Mumbai and Delhi, respectively. In fact, the tour operator’s another SoBo property (at Fort) is estimated to be worth up to Rs 250 crore.

In May last year, Fairbridge Capital (Mauritius) had acquired a 76.69% stake in TCIL from its erstwhile UK-based parent. In February this year, TCIL diversified into executive search industry.

L&T earnings down, says road remains challenging

This story first appeared in DNA Money edition on Tuesday, July 23, 2013.

Engineering and construction major Larsen & Toubro’s (L&T’s) first quarter (Q1, April-June) net profit declined 12% on-year to Rs 756 crore but revenue grew 5% to Rs 12,555 crore while operating profit margin declined 0.6% to 8.5%.

But the firm’s MD and CEO K Venkataramanan struck a note of optimism that L&T retains its ability to undertake and deliver projects in a way that adds to shareholder value.

Yet, he conceded that “on the ground scenario” in the country is not rosy but full of challenges.

“We are going through the most challenging times...  The government is trying to push some big ticket items primarily in the areas of freight corridor, transmission and roadways.”

R Shankar Raman, CFO, said that opportunities are limited and there is competitive pressure on pricing. “I don’t think you’ll find (now) margin levels reported earlier in 2007-2009...”

L&T management expects to maintain its guidance on Ebitda margins of 11-11.5% for the year. During Q1, order inflow improved 28% to Rs 25,159 crore, increasing the order book size by 8% to Rs 1,65,393 crore.

Analysts tracking L&T said Q1 numbers were lower than expected, hence the stock’s 7.5% dive to Rs 901.95 on BSE on Monday, the biggest drop in nearly four years.

Sanjeev Zarbade, vice-president of the private client group research at Kotak Securities, said the Q1 numbers were disappointing in the short term; however, on a long-term basis, they remain positive.

Viral Shah, senior research analyst - infrastructure, Angel Broking, concurred. But he pointed out that L&T’s numbers were below expectations on both the revenue and profitability fronts. He attributed this to “lower-than-expected execution and poor operating performance”.

However, L&T may benefit from the gradual recovery in the capital expenditure cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to its peers, said Shah.

So, Angel Broking is likely to revise its target price and rating on L&T, said Shah.

L&T officials said the country’s infrastructure industry has not been faring well for a while now due to economic slowdown. Hence, the company has been aggressively pursuing international markets, which helped increase its international order book size by 16% during Q1.

“While international markets have their own challenges, we are making inroads there and the results should be visible in the near future. There is a business opportunity overseas and we will secure our share, thereby insulating ourselves from the India story, which is likely to be a little slow in the next two years,” said Venkataramanan.

Pvt placements in agri biz up 75% in Jan-Jun 2013

This story first appeared in DNA Money edition on Monday, Jul 22, 2013.

A substantially large Indian agricultural market, coupled with increasing activity in the sector, has led to a significant increase in private equity (PE) and venture capital (VC) placements.

Going by data compiled by research service Venture Intelligence, the sector witnessed a 75% year-on-year increase in PE/VC investments during the first six months of this calendar year.

A total of nine agri-business companies raised around $126 million in the first half compared with $72 million raised by six companies in the same period last year.

Agriculture and related businesses comprise the entire value chain, encompassing foods, agriculture produce, seeds, fertilisers, agri-technology and agri-infrastructure.

Industry experts feel businesses addressing the bottom of the pyramid offer a great opportunity for focused investment firms.

“Investing in agriculture and related businesses fit perfectly into their investment theme,” said a top official with an international transaction advisory.

The largest PE investment in the industry during 2013 was Multiples Private Equity’s Rs 250 crore ($43.24 million) investment in Bangalore-based Milltec Group, which develops technology and machinery for rice milling, roller flour milling, maize (corn) milling and agro-processing plants.

Another buyout focused PE firm, India Value Fund, has committed $40 million to pick up a majority stake in Kochi-based spices firm VKL Seasoning. VKL, a spin-off from the Vallabhdas Kanji Group, provides seasonings and flavours to customers, typically quick service restaurants, in India, the Middle East and Africa.

Interestingly, this time around, the agri-business sector also witnessed participation from investment firms based out of the Middle East region.

For instance, in February, Qatar-based Hassad Food acquired 69% stake in PE-backed rice exporter Bush Foods Overseas for around Rs 800 crore ($135 million), giving existing investor StanChart PE a 2.5 times return on its investment.

Similarly, last week, publicly listed rice exporter Kohinoor Foods agreed to sell a 20% stake for almost Rs 113 crore ($18.8 million) to Al Dahra Holdings, an Abu Dhabi-based agriculture focused investment firm.

Arun Natarajan, CEO, Venture Intelligence, said the rising appetite for such companies among overseas investors and also the higher prices being enjoyed by agri commodities in recent years could continue to sustain PE interest in the industry.

Apart from PE buyouts, the latest quarter (ending June) also witnessed VC funds and specialist agri-business focused funds stepping up their investment activity.

Omnivore Partners, an agri-business focused investment fund, announced two new investments in the latest quarter – in pork products firm Arohan Foods and fly trap maker Barrix Agro Sciences.

Additionally, Khyati Foods and Lawrencedale Agroprocessing attracted VC funding during the quarter from SEAF and Sarona Asset Management and Aspada Investments, respectively.

Lupin targets 30% topline from US branded biz

This story first appeared in DNA Money edition on Wednesday, July 10, 2013.

As part of its long-term growth strategy, Lupin, India’s third largest pharma company, is looking to increase contribution of branded business to its overall US revenues to 30% from 21% last fiscal, mostly through the inorganic route.

Lupin group president and CEO-designate Vinita Gupta has been maintaining since the last few quarters that acquisitions would be part of the company’s overall business approach.

While scouting for brands in some geographies, the company is simultaneously looking to buy companies that can provide new technology and market access.

Balaji Prasad and Rohit Goel, analysts at Barclays Equity Research, said Lupin has identified key growth drivers for the next 7-10 years.

“Apart from increasing contribution from branded business, the management will be leveraging focus on speciality segments like derma and oral contraceptives in other geographies and sustaining its strong traction in the US,” they said in a report on Monday.

Among other key growth-drivers would be a strong balance sheet with the flexibility to raise up to $1.7-2 billion if required; a strong distribution network; alliances with doctors to drive growth in Japan; and strategic partnerships to strengthen domestic business.

“Lupin plans to enter the dermatology segment and could potentially acquire derma assets too in the business,” the Barclays analysts said.

The coming years will see Lupin management focus strongly on the oral contraceptive (OC) and dermatology segments. Industry experts think OCs in the US could also be leveraged to venture into other big markets such as the $1.5 billion OC market in Brazil.

With the resumption of OC approvals in the past six months (which saw eight approvals and one launch), OCs are being viewed as a major growth-driver for Lupin.

DB Realty to de-focus from hotel projects

This story first appeared in DNA Money edition on Monday, July 8, 2013.

With its real estate business getting back on track, Mumbai-based DB Realty has decided to not take up any new hospitality projects and shelve earlier plans.

Properties that have already been developed and are running will be retained by the company, while those in the pipeline will either undergo change of use or get divested.

Vipul Bansal, chief executive officer, DB Realty, said, “Hospitality is not the focus area and there is no plan really to expand the hospitality asset portfolio anymore. Projects where work has not started will either get converted into residential developments or we will get rid of them. The focus will purely be on the realty business.”

Without divulging details, Bansal said a development in Pune will get converted to residential project while the company will sell up to 49% in the land parcel (7.7 acre site) at Delhi International Airport’s (DIAL) new hospitality district.

The plot at DIAL is under DB Hospitality Pvt Ltd, a group company in which DB Realty hold 49% stake. Earlier plans were to house four hotels and a large convention centre. However, plans were restructured later to develop 1.3 million square feet of the plot featuring a hotel, a convention centre, serviced apartments along with 300,000 sq ft of high-end retail space.

“It’s a very ideally located land with roads on three sides. We are not developing it anymore so whosoever comes in as a strategic partner will decide its configuration,” said Bansal.

On reports about the company looking to sell operational hotel projects in Mumbai and Goa, Bansal said there were talks earlier with an investor to sell a minority stake.

“These are big landmark hotels, something that we’d like to retain,” said Bansal.
The Park Hyatt hotel development that was to come up at the company’s Charni Road, Mumbai, site has also been put on hold.

The company owns a small hospitality asset in Mundra (Gujarat) and another 50-odd guestroom property in Rajasthan, which are on the block for a while.

“If some body wants to buy we are more than willing to sell. However, there is no stress in the system anymore. Our banking lines are already open to meet day-to-day requirements. It is business as usual and any stake sale in our hotel projects will be purely opportunistic,” said Bansal.

On the residential front, the company has concluded sales worth about `800 crore in second half of the last fiscal.

The realtor is in advanced stage of getting key approvals for its 4-5 projects in Mumbai and expects to launch them in 6-8 months. The company will hit the market with 5-6 million sq ft in Mumbai at prices exceeding Rs 30,000 psf.

“We are talking about Rs 15,000 crore of fresh inventory in the market, which is very huge for us. We are very comfortable with Rs 500 crore debt as we have cash flow of Rs 70 crore every month. All our inventory is paid for so we don’t need to do any of the things done by other players in the market,” he said.

RCom to spin off land assets

My colleague Beryl Menezes co-authored this story first appeared in DNA Money edition on Monday, July 8, 2013.

Reliance Communications (RCom) on Sunday announced demerger of its real estate business into a separate entity to be called Reliance Properties, subject to “approvals from shareholders, lenders, courts”.

The real estate firm will likely be listed within four months. RCom shareholders will be given one share in Reliance Properties free for every one share of RCom they possess.

Analysts pegged the indicative value of one share of Reliance Properties at Rs 60, while the market price of an RCom share is Rs 130. This translates to almost 50% enhancement in the RCom shareholder’s value.

Analysts said the spin-off decision looks like a ‘desperate attempt’ by the highly leveraged RCom to pare its Rs 38,864 crore debt as of March this year.
Assets of Reliance Properties will include RCom’s prime property in Dhirubhai Ambani Knowlegde Centre (DAKC, pictured) in Navi Mumbai and a prime property near Connaught Place in Delhi.

RCom also has land in the new business district in Hyderabad and in Kolkata, which may also be considered for possible sale at a later stage.

The collective monetised value of 135 acres in Mumbai with a saleable area of 15 million square feet and four acres in Delhi is estimated to be about Rs 12,000 crore.

RCom said in a statement that it will now focus on its core wireless telecom and enterprise business.

An RCom spokesperson said the demerger will a transparent process and would not impact RCom’s profitability.

Analysts said the demerger seems to be aimed at creating large shareholder value, similar to the value created from the initial demerger of the Anil Ambani-led Reliance Group from Reliance Industries in 2005.

Sources said that RCom may be in discussions with one or more suitable investors already. RCom’s management on Sunday admitted that Reliance Properties would be also working with foreign investors to sell / lease its real estate assets.

Further details about the new company – management, headquarters, so on – will be revealed once the mandatory approvals are obtained.

In December 2012, RCom had entered into an agreement with Wanda, China’s leading real estate group, to lease out assets in DAKC and Hyderabad. RCom confirmed that the property up for grabs as part of Reliance Properties would be separate from that currently under development by the Wanda group.

Harit Shah of Nirmal Bang said, “The (spin-off) move is positive for (RCom) shareholders, as the land was not being used. Now, it will generate some value.

While the benefit to RCom will accrue only after the process of acquiring a stake in Reliance Properties is complete, the fact that the company had to hive off its real estate assets due to the debt burden, even when it has better assets like FLAG, which it is unable to sell, speaks volumes about the current state of the company. Even after floating Reliance Properties, what is key for RCom is to get the actual valuation of the land from investors, as estimated by the company.”

Sanjay Dutt, executive MD-South Asia, Cushman and Wakefield, a real estate firm, said, “Large corporates that are under financial pressure tend to use their non-performing assets to raise funds for the core business. While this is not a bad strategy – it was earlier used by Siemens, Tatas and HUL – ideally, RCom should have sold the land assets, as they are not a real estate company.

Further, one would have liked to know what is the vision of the company and whether the alternate route (if somebody wants to unlock the value of the unutilised assets) is to auction, sell land, put the money in the bank or give it to the shareholders and be happy.”

Ambar Maheshwari, MD-corporate finance, Jones Lang LaSalle, another property firm, said, “Real estate prices have gone up despite the tough economic environment in the last few years. Most corporates are looking at somehow monetising or optimising it.”

Cement prices sag, may fall further

This story first appeared in DNA Money edition on Saturday, July 6, 2013.

Cement prices declined across the country in the last fortnight except in South despite efforts by manufacturers to arrest price fall ahead of the lean monsoon season.

Prices fell Rs 10-20 per 50-kg bag in the last 10 days of June after rising Rs 5-25 per bag between May-end and early June in northern, eastern and some pockets of western India, according to a pricing trend report by Motilal Oswal Securities.

The demand too remains sluggish in most regions and may worsen in the next one month due to monsoon. Prices are likely to fall further due to weakness in demand.

Jinesh Gandhi, vice-president - research (cements), Motilal Oswal, said in the report that after rising till mid-June, prices on a month-on-month basis in north and east were down by Rs 8-15 per bag.

“However, central India posted relatively lesser volatility, albeit exit prices (June-end price) were down by Rs 10-15 per bag. Markets in west – Mumbai and Nagpur – remained mostly stable though Pune and Ahmedabad saw strong swing during June. Raipur (east) and Bhopal (central) showed stable to marginal increase in prices,” he said.

Cement firms generally raise prices ahead of monsoon as June to September is a lean period for sales.

In Pune, after rising by Rs 10 in May, prices went up by another Rs 20-25 in June. However, in the second fortnight of June, they fell by Rs 20.

Prices fell Rs 40 per bag to Rs 225 in Ahmedabad, before rising to Rs 260-265 per bag due to production discipline, which, some dealers said, was about 30% by Tier I players.

According to the report, mid-June prices of Tier II/ outside brands (like Wonder cement) went down to as low as Rs 197 per bag in Ahmedabad.

In Delhi, Jodhpur and Chandigarh, prices were down Rs 5-10 per bag. After Rs 15-20 per bag increase in May, Delhi and Jodhpur saw another increase of Rs 10 per bag in June before reversing by Rs 20 per bag in the last couple of weeks.

Contrary to the declining trend, markets in south India (the first to hike prices) saw cement prices either remain stable or increase.

“Prices in AP were up by Rs 90-100 per bag over past 45 days, led by production discipline. AP dynamics impacted the adjacent markets positively with Bangalore and Chennai seeing Rs 15-20 increase,” said Gandhi.

Some dealers from central and eastern parts see good harvesting season boosting rural demand, he said,

“Overall, while visibility remains weak for the near term, medium-term demand outlook has optimism with several infrastructure/power projects underway,” he said.

New DTH connections to cost more on rupee fall

This story first appeared in DNA Money edition on Friday, July 5, 2013.

Those looking to buy a new direct-to-home (DTH) connection, get ready to shell out more.

Given the rupee’s decline, DTH operators are left with no option but to pass on the incremental cost of importing set-top boxes (STBs) to new subscribers.
Leading the pack is DTH market leader Dish TV, which has a 28% share of India’s $1.5 billion, 32.4 million subscriber (2012 figures as per Media Partners Asia) DTH industry.

The company has increased the prices of its standard definition (SD) and Dish Plus recorder STBs by Rs 250 effective Thursday to Rs 2,249 and Rs 2,349, respectively. No hike has, however, been effected for high-definition (HD) set-top boxes, which continue to be sold at Rs 3,099.

The increase in STB prices more or less mirrors the rupee’s decline against the dollar. The local currency has lost almost 12% in the last two months and closed Thursday at 60.13.

Dish TV officials did not share further details citing silent period for their fiscal first quarter results, which are due soon.

Other DTH players, including Tata Sky, Reliance Digital and Airtel Digital are also hiking prices.

Harit Nagpal, CEO & MD, Tata Sky, the Tata Sons DTH joint venture with Star India, confirmed the price hike, saying changes in currency rates hurt the company since it imports all its STBs.

“New customers will now get a Tata Sky connection at a marginal (8-10%) increase owing to the falling exchange rate of the Indian rupee,” he said, adding that the new rates took effect on July 1.

A Reliance Digital TV spokesperson, too, confirmed a Rs 260 hike in SD set-top boxes to Rs 2,250 from July 4.

Officials from Videocon d2h and Sun Direct could not be reached.

Though Airtel Digital has not formally announced its decision yet, a company official said a price hike is inevitable.

“DTH companies are already facing challenges by offering STBs at subsidised rates. The depreciating rupee is only making things tougher. I’m most certain that STB prices will be increased in more or less the same proportion to what competition undertaken,” the official said, requesting anonymity.

The DTH industry is on a growth trajectory thanks to compulsory digitisation prescribed by the Telecom Regulatory Authority of India. Industry experts feel DTH players will benefit the most in the third and fourth phases of digitisation, covering the entire nation by December 2014.

A report by Media Partners Asia, an independent provider of information services focusing on media, communications and entertainment industries, the Indian DTH industry will grow to $3.9 billion and  63.8 million subscribers by 2017 and $5 billion and 76.6 million subscribers by 2020.

Infra companies rope in foreign partners

This story first appeared in DNA Money edition on Monday, July 1, 2013

Last week, IL&FS Transportation Networks (ITNL) partnered with Japanese road construction firm East Nippon Expressway Co to tap public private partnership (PPP) projects in India. 

Tata Sons’ wholly owned subsidiary Tata Realty & Infrastructure Ltd (TRIL) is seeking foreign collaborations to bid for urban transportation projects, a space it believes will only get bigger in the coming years. 

For airports development, TRIL is understood to have got on board a foreign partner to bid for upcoming projects. 

A host of other infrastructure companies too are seeking foreign allies to grab a bigger share of Indian  infrastructure growth story. 

Overall infrastructure spend under the 12th Five Year Plan (2012-17) is estimated to be around $1 trillion (Rs 60 lakh crore). Half of the figure is expected to be invested by the private sector. 

“In terms of the overall capacity addition, it would be the largest infrastructure build-up in the country and more than what has been built in the last two Five Year Plans put together,” said Mukund Sapre, executive director, ITNL. 

He said the power sector will see the largest investment at Rs 15 lakh crore, followed by road and bridges (Rs 9.5 lakh crore), telecom (Rs 8.5 lakh crore), railways (Rs 4.5 lakh crore), irrigation (Rs 4.5 lakh crore) while ports, airports, water and sanitation, logistics, etc will make up the rest.

But why foreign collaborations?

Sanjay G Ubale, MD & CEO, TRIL, said “Foreign collaborations have become important as infrastructure projects are now getting bigger and complex requiring a lot of technology in terms of construction in addition to sound project management skills.” 

He said such tie-ups help in pre-qualifications in the government tenders.

“There are various terms and conditions required to be fulfilled to pre-qualify when the government puts out a tender. Some of these criteria can only be met by a foreign construction company,” Ubale said.

TRIL had partnered with French company Vinci for the Mumbai Trans Harbour Link – a Rs 9,360 crore, 22 km freeway grade road bridge connecting Mumbai and Navi Mumbai. The contract is likely to be awarded by August.

Also, the infrastructure projects tend to be very large, calling for significant investments, which a single company may not be able to garner. 

Most collaborations happening currently are for attracting foreign capital. 

“Since in any collaboration the partner has to bring in capital to the extent of his participation, financial health is an important criteria,” said Sapre.

Sensing opportunity, many financial institutions too have formed joint ventures to build up infrastructure portfolios such as infrastructure fund by Macquarie-SBI. 
Similarly, many other non-banking financial companies have set up infrastructure development funds to provide debt funding. 

Of the total infra spend Rs 40,000 crore is estimated to be expended on the EPC works for roads, ports, solar power, thermal power, railways, etc. giving ample opportunities for private investment. 

“The total investment envisaged during 2012-2017 is estimated to be $800 billion. The Indian infrastructure companies should see their order book growth by 20% annually over the next five years,” Sandeep Upadhyay, senior vice-president and head-infrastructure solutions group, Centrum Capital, said. 

While all the infrastructure sectors provide excellent opportunities for investments major attractions would be in categories such as roads, railways, ports, power and airports, he said.

Private FM operators favour higher FDI cap

This story first appeared in DNA Money edition on Saturday, June 29, 2013.

The Association of Radio Operators for India (Aroi) is understood to be in favour of an  increase in the foreign direct investment (FDI) limit to 49% from the current 26%, as proposed by the panel led by Arvind Mayaram, secretary, Department of Economic Affairs.

The Aroi governing body, in a meeting on Friday deliberated on the panel’s suggestions ahead of the inter-ministerial group’s meeting next week.

An industry source said the deliberations were not yet over and the matter has been opened to voting. “There is overwhelming support for increased FDI. The ministers will be consulting with leading industry layers on Saturday, post which, the matter will get discussed by the inter-ministerial group early next week,” said the source.

Officials of My FM, Radio City and BIG FM could not be reached for comments.
“It is a bit early to make a concrete statement considering the matter is still being discussed. Aroi has not gone official with its views. We’ll have to study Aroi’s stance and take a call on our approach accordingly,” said a top official of one of the big five private radio companies.

In May, the Union Cabinet had approved the EGoM’s decision to auction 839 channels in 294 cities as part of the third phase of private FM radio. The new FM radio frequencies will be opened for cities with a population above one lakh.

Currently, 86 cities are covered by FM radio services.

Unlisted Tata infra firms aim for 4x orders

This story first appeared in DNA Money edition on Thursday, June 27, 2013.

Tata Housing, Tata Projects and Tata Realty & Infrastructure, the Tata Group’s unlisted infrastructure entities, are on course for a four-fold increase in order book over the next five years.

The current order book (fiscal 2014) stands at Rs 15,000-20,000 crore and the goal is to ratchet this beyond Rs 70,000 crore in the next five years.

The Tata Group, operating in the Indian infrastructure space since 1910, has eight companies across sectors like energy, telecom, realty, transportation, infrastructure, project execution, project consultancy.

They contributed $12.5 billion, or 12.4%, to the group’s overall revenues in 2011-12.

Siddhartha Roy, economic advisor to the group, said the ratio of private and public sector in the country’s infrastructure spend used to be 25:75 in the 10th Five Year Plan, which increased to 36:64 in the 11th and is almost 50:50 in the 12th.

“What this basically means is that a very large part of the investment or the funding for this investment has to come from the private sector. The group has already made significant investments in the area of power, telecom, housing, infrastructure (roads, airports, urban transportation) etc and will be aggressively building the pipeline across infrastructure projects in the coming years,” said Roy.

Of the envisaged Rs 70,000 crore orderbook, the share of Tata Projects Ltd will be about Rs 25,000 crore, while it will be Rs 24,000 crore and Rs 22,700 crore from Tata Housing Development Company and Tata Realty & Infrastructure, respectively.

Sanjay G Ubale, managing director and CEO, Tata Realty, said investments will be in areas like road projects (Rs 7,500 crore), airport (Rs 5,000 crore), urban transportation (Rs 3,000 crore), industrial park (Rs 3,000 crore), real estate (Rs 4,000 crore) and hospitality (Rs 200 crore).

“We are looking at three airport projects of which work on the Jamshedpur site has already started. We will also bid for the Goa and Navi Mumbai airport projects as and when they are invited. On the roads front, there are 10 projects for which bidding is likely to happen and we should get at least two projects if not more,” Ubale said.

The commercial real estate space currently offers huge potential for inorganic growth and the company should be concluding a few deals in the coming few quarters in addition to taking the organic approach to building up portfolio, he said.

As for Tata Housing, the company has been growing at almost 100% compounded annual growth rate (CAGR) over the last 4-5 years and currently has 26 signed projects at various stages of planning and execution.

With approximately 704 acres of landbank, the company currently has 55 million sq ft under development across 10 states across including eight major cities and 11 locations.

Brotin Banerjee, managing director and CEO, Tata Housing, said growth this year might be relatively slow mainly because of delayed approvals and general slowdown in the market.

“Having said that we have over 90 million sq ft in the pipeline under various stages of approvals. We are hoping to sign a very big private-public partnership project in Sri Lanka which should happen in the next couple of months.”

Cable TV user data deadline extended

This story first appeared in DNA Money edition on Wednesday, June 26, 2013.

The Telecom Regulatory Authority of India (Trai) has extended the June 25 deadline for submission of television customer application forms (CAFs) by cable networks to July 10.

Multi-system operators (MSOs), or mega networks that deliver cable and satellite television channels to homes via neighbourhood allies, pleaded that since compiling CAFs is an enormous and complex task, a deadline extension is necessary, Trai said.

The extension was also done to minimise consumer inconvenience. If the new deadline is not complied with, subscribers’ existing connections via set-top boxes (STBs) would be disabled, Trai said.

Ashok Mansukhani, executive director of IndusInd Media and Communications, an MSO, welcomed the deadline extension. “Each MSO has given individual deadline to Trai. I’m sure they will do their best to achieve it.”

Trai said the number of identified subscribers has increased, but there are still a large number of television subscribers whose details are not yet available with cable operators and MSOs.

Industry sources said some 70% of CAFs may have been submitted so far under the new ‘digital addressable cable TV systems’  regime. “Certain operators will have to finally select which MSO to go with,” said Mansukhani.

But Roop Sharma, president of the Cable Operators’ Federation of India (COFI), said, “The extended period is not adequate. There are unresolved issues like the nature of deals between MSOs and broadcasters. MSOs are keen on offering bouquets or packages of channels, while the government is talking of an a la carte rates.”

Most of MSOs have begun offering a la carte pricing. “A la carte may not have caught on yet with consumers in India, but bouquets tend to be cheaper worldwide,” said an MSO official.

Now, Ranbaxy's Mohali unit under FDA cloud

This story first appeared in DNA Money edition on Tuesday, June 25, 2013

Ranbaxy Laboratories seemed to be getting into more trouble on Monday after its stock tanked 6.8% to a almost 4-year low following reports that the US drug regulator had issued Form 483 to the pharma company’s drug manufacturing unit at Mohali in Punjab. 

Responding to queries on the US Food and Drug Administration (FDA) issuance, a Ranbaxy spokesperson said, “We continue to make regulatory submissions from Mohali and as and when we get approvals we will commercialise products from Mohali.”

A Form 483 is issued by the FDA at the conclusion of an inspection to notify the company of objectionable conditions that might be in violation of the US Food, Drug and Cosmetic Act and related laws. However, it does not prevent a company from making regulatory filings from that unit.

Analysts said the implication of the fresh development on the business was not clear.  

“There is no clarity from the Ranbaxy management on Form 483. We don’t know if the US FDA has actually issued anything like that,” said an analyst with a domestic brokerage.

“The stock has fallen almost 20% in the last four weeks owing to various negative developments. I think the Ranbaxy management doesn’t want the stock to go into a free-fall by acknowledging the US FDA move,” said another analyst, adding that development may not impact the stock significantly if the situation is not so critical. 

“The management will, however, have to clarify the situation and its magnitude to avoid further damage,” the analyst said.

Earlier in April, the US FDA has issued a similar Form 483 to one of Wockhardt’s facilities at Aurangabad in Maharashtra. This led to the FDA issuing an import alert on that plant just last month. The Wockhardt stock had fallen 20% on both occasions and is currently trading at Rs 1,004.55, down 2.54% from Friday’s close of Rs 1,030.70. The stock was trading at Rs 1,229.7 a month ago.

Ranbaxy has been going through a tough phase for sometime.  Last week, the EU antitrust regulators fined Ranbaxy to the tune of euros 10.3 million (the company management plans to appeal against the decision).

Prime Focus World secures Rs 313 cr from Macquarie Capital

Prime Focus World NV (PFW), the creative services division of Prime Focus Ltd (PFL) has raised Rs 313 cr in private equity investment from Macquarie Capital. To be deployed in two phases the first tranche of Rs 224 cr has already been rceived in the first phase signed and Rs 89 cr in a second transactional phase, both of which are designated for strategic growth. This investment now places an enterprise valuation of Rs 1770 cr on PFW.

The capital raised will be used for the build out of the global creative services platform, near-term strategic acquisitions and deleveraging debt in the parent company, Prime Focus Limited, with the combined emphasis of expanding PFW's position as a global leader providing visual effects, animation, and stereo "3D" conversion services to major studios and filmmakers around the world.

Namit Malhotra, founder and chief executive officer-PFW and founder-PFL, said, “In the past five years, our business has gained tremendously through expansion of our product offerings and entrance into new markets. Combined with the backing we have received from our other financial partners AID Partners Capital and Suntrust, the investments will allow Prime Focus World to continue to expand and diversify our creative and technological offerings around the globe.”

Macquarie Capital, the advisory, capital raising and principal investing arm of Macquarie Group, made the investment to PFW and provided advisory services to its parent company, PFL. In addition to the funding from Macquarie, PFW also secured $10 million from China’s AID Partners in March.  Coupled with a recent investment of $70 million from Standard Chartered Private Equity in PFL, these investments illustrate strong confidence in the business strategy and growth prospects for the overall group.

Namit added, "After having made an initial investment of $43million in 2008 to build out our global platform, we have transitioned and become a business where today our shareholders are seeing a seven times increase in value, while most companies have found it hard to keep pace with the changing times. The investments validate our global ambition to become a world leader while continuing to create greater value for our shareholders.”

PFW has brought its expertise to many wide release Hollywood films, including most recently Baz Lurhmann's The Great Gatsby and Paramount’s World War Z, and upcoming releases such as Sony Pictures’ White House Down. Previously released films that the company contributed to include Men in Black 3, Star Wars: Episode One – The Phantom Menace, Dredd 3D, Total Recall, Tim Burton's Frankenweenie, Harry Potter and the Deathly Hallows: Part 2, Narnia: The Voyage of the Dawn Treader, Resident Evil: Retribution, Green Lantern, Immortals, Wrath of the Titans, Mirror Mirror, Transformers: Dark of the Moon and Avatar.

Prime Focus to launch ops in China

This story first appeared in DNA Money edition on Thursday, June 20, 2013.

Prime Focus (PF), a provider of media and entertainment (M&E) services, is making a foray into China and will set up operations by the third quarter of this fiscal, said Ramki Sankaranarayanan, CEO.

PF’s initial bouquet of services in China would include visual effects and 2D-to-stereo-3D conversion. The company will also explore hybrid cloud technology-enabled asset and workflow management solutions for broadcast industry.

The move to set base in China follows the joint venture (JV) formed by PFs, AID Partners Capital and Zhejiang Jingqi Wenhua Chuanbo in March.

Sankaranarayanan said, “The decision to enter China was a mutual understanding between partners. A key construct of AID Capital’s investment in PF was that PF bring its creative and technology expertise to benefit the M&E market in China.”

A promising 3D market opportunity and the overall M&E industry prospects in China, one of the world’s largest content markets, were key factors that propelled PF into China.

Namit Malhotra, founder of PF, said, “After India, Europe and North America, China was the growth story waiting to happen. The AID Partners relationship has gone beyond investment in a formal market entry vehicle to expand our footprint into one of the most influential markets in the world.”

According to the Chinese State Administration of Radio, Film and Television, China’s 2012 box-office receipts increased 30%, thanks largely to imported films, placing the People’s Republic as the world’s second-largest box office next to the US (surpassing Japan).

It was too early to decide on a greenfield set-up of PF in China as details about the size of infrastructure, office space and employee strength are yet to be determined, said Sankara narayanan.

“As of now, we are opening a marketing and sales office in Beijing. We will offer a complete suite of creative and technology services. Our investment in the JV is $3 million, which will be deployed for future investments,”said Sankaranarayanan.

Market accessibility and client intimacy will be key focus areas versus cost arbitration, he said.