'Green buildings will be ubiquitous in a decade'

An edited version of this Q&A first appeared in DNA Money edition on Tuesday, November 20, 2012.

Phillip Bernstein

A green building is one which uses less water, optimises energy efficiency, conserves natural resources, generates less waste and provides healthier spaces for occupants, as compared to a conventional building. Phillip G Bernstein, vice president - Industry Strategy and Relations, Autodesk Architecture, Engineering & Construction (AEC) Solutions, delves into the concept of green buildings and its significance in creating a sustainable living environment. Edited excerpts...

Could you throw some light on the green building concept? How has is really evolved over the years?

It’s a great question. I am an architect and I practiced for a long time before joining Autodesk. When I was a student in the late 70s or nearly 80s, we had just come out of big energy crisis. What was called green building back then used to be solar architecture. It was about trying to make buildings use energy more efficiently and that’s all anybody cared about. However, as soon as gas prices went down the whole idea disappeared.

I was talking to one of my professors about the question of solar architecture and I asked him if it was important. He said No, it’s just pluming and that doesn’t mean anything. That was 30 years ago.

Now we have this green building movement, which is about building real estate. While architecture is a cultural phenomenon the green building movement is all about growing awareness of the responsibility of the things that we make and how they affect the environment.

How is the concept different today and what will it be like a decade or so from now?

A lot of real estate developers would talk about green as a marketing idea or something they are being forced to do that cost them extra money. We are in this middle period, where we are trying to think, fighting among ourselves whether it’s important. I think in the third period, which is probably going to start 10 years from now and going forward it will not just be a discussion but a basic part of how buildings should be built.

For example, back in the 1920s in the United States, when building industry was evolving after the civil war the idea of making a building safe for its occupants was optional. It wasn’t required by the law, it wasn’t the part of the regular working or part of the process. Then there was a terrible fire in New York where hundreds of people were killed in a factory. And suddenly the idea of life safety became part of architects and engineers and builders.

We don’t talk about it, you don’t hear a developer ever say you know I am not going to put those sprinklers in that building because it’s going to cost too much or I am not going to build those fire stairs because they are too expensive or I am not going to put any emergency lighting because that costs me too much money. It’s just what we do now and green buildings are going to become what we would basically do to build these structures.

Has global warming necessitated the concept of green buildings?

I live in New York, my house is surrounded with trees and the city is flooded... It’s all global warming, climate change causes it, there’s too much energy in the atmosphere. That energy is caused by solar radiation being trapped in the energy by carbon. Buildings produce 40% of the carbon that we put into the atmosphere, it’s as simple as that. Buildings consume most of the electricity produced, most of the carbon and use most of the water that we use. It’s not optional.

My recent discussion at a green building summit in Hyderabad was if your obligation is to predict the things affecting the environment when making a building or a highway or waste water treatment plant or an airport the best way to do that prediction is to create a digital prototype and test it in digital format first. And that’s not what we do what we do as architects and engineers is make diagrams, then we speculate and we do very quick analysis and what we can do with computer is actually predict what is going to happen.

Are people really taking it up? Is it very specific to developed economies?

It's starting to happen. It’s much better understood concept in the markets where we see deeper penetration towards technology like US, UK, Australia, Singapore etc, so we are getting there. I’ll give you an example, in the UK when the government changed last year, the new prime minister said we are going to a net zero carbon economy. Meaning buildings are no longer going to contribute carbon to the environment and he assigned his bureaucracy the problem of figuring it out how to do this.

One of the things happening in Britain in the following years is the government is now requiring that all government buildings be designed using digital models instead of drawings. So we are going to get the building industry to net zero and use advance technology to do it. They are studying the technology, they are training, they are experimenting, they are writing standards and they are making the change.

So unless it made mandatory by government, it won't be take seriously?

Ultimately it has to be, as those government regulations are manifestations of social desire. In India, I was told at the recent green building conference in Hyderabad, over 60% of the buildings are going to be built in the next 30 years. What it means is that 60% of all the buildings that will exist in India 30 years from now, have not been started yet. These buildings will generate huge amount of carbon, consume huge amount of building materials and huge amount of water. Would you really go about building such kind of infrastructure, without thinking about the effect on the environment? Doesn’t make any sense right?

So the question is what’s the strategy? I watch my colleagues from the Indian green building community trying to figure it out what they need to focus on, they trying to decide and it’s because the opportunity is amiss. And it’s a question of picking the things which they think can be most effective. I do believe that no matter what they decide to do, modernising the methods of the construction industry which includes using advanced digital technology, which is not a new idea.

What are the elements that make for a green building?

The essence of a green building is one that has a minimum amount of impact on the environment and has responsible relation to the environment. Buildings are enormously complex and the process of building them is enormously wasteful. They use huge amount of energy and they produce huge amount of carbon and so a net zero carbon building is one that the design and construction strategy is such that the building does not consume any energy after everything is set and done.

Is doing a green building more costly?

No, not necessarily. What I am saying is, they’ll do what the model says they are being driven to do. They are not going to come here and do out of the goodness in their hearts.  So I build a building which makes a small incremental investment in the infrastructure of a green building. But you would reap the better fruits over the life of the building.

How effective is Indian Green Building Council (IGBC)?

They have done a good job. I think they are just on the cusp of really getting this thing going. They claim they have got 1.26 billion square feet of green building area which sounds impressive and at one level it is. But it’s only couple of 1,000 buildings. They still have to go a long way considering the numbers of building that will be built in the coming years.

'Home buyers can clearly discriminate between credible and non-credible supply'

Abhisheck Lodha

Abhisheck Lodha, managing director of Lodha Group, which is coming up with several premium realty projects in Mumbai, feels the fall in interest rates is set to give a fillip to the sector. He said the credible and non-credible supply of real estate developments need to be looked at separately. He spoke about the market scenario and his company's plans. Excerpts from the interview:

What is your view on the current demand scenario, particularly in the premium segment which constitutes majority of your realty development portfolio?

The market is quite broad and demand is very strong for apartments / properties in the Rs 50 lakh to Rs 5 crore range. Unfortunately, majority of the discussions we get to hear these days is about piling up of supply and how inventory is not selling. What needs to be taken into consideration is that the home buyers can clearly discriminate between credible and non-credible supply. So lack of sales in the non-credible supply is clubbed with sales in the credible supply, but these are two different demands and markets.

Borrowing costs are still on the higher side for the home buyer though...

Some banks have announced interest rate cuts for mortgage financing in the recent past which is a good development for the industry. For the first time in the last two years, we are seeing single-digit interest rates and that's a very strong psychological effect. Overall, the rates are showing signs of coming down as there is a lack of credit uptake in the economy. Housing mortgaging is a long-term safe sector and no bank has ever lost money lending and non-performing assets are barely 0.1% to 0.3%. Banks will be more focused towards mortgage lending, which is good for the sector.

Do buyers in the Rs 3-5 crore range really find these 0.25% to 0.5% reduction exciting enough?

In absolute terms, a reduction of that kind may really not make much of a difference. But if you keep adding the percentage point reductions over a period of time, it is certainly exciting on a cumulative basis. Just two months ago, cheapest mortgage was available at 11% and the rate being talked about currently is 9.5% or so. Now a reduction of almost 1.5% in interest rates certainly makes a lot of sense.

How is the New Cuffe Parade development shaping up?

New Cuffe Parade is a neighbourhood and will develop over time with very unique offerings. We have already launched two developments there and a 63-storied third project was recently launched wherein we roped in UK-based Yoo Ltd to design, brand and market it. The development will have a mix of all the best that the world has to offer. We will keep striving to make sure that the new city centre has everything in terms of design, services and facilities that a project like that should offer. We have already sold more than 70% of the first two towers that were launched in the market.

What is the profile of buyers at your properties? Do you also get a lot of overseas buyers?

While there are people from outside India who have taken interest in this development, majority are domestic buyers. As a company we want to cater to the requirements of people of India, people with really good taste and desire for quality real estate developments. I strongly believe that our own people should be occupants of these apartments. Our developments are planned for the end-users residing in India.

The Indian rupee has depreciated against the US dollar and that appears to be presenting a huge opportunity for international buyers...

We always get such buyers for our developments, but that's just about 10-15% of the overall customer base. It's not very significant. Besides, it is very likely that the rupee could get stronger against the US dollar too, so it may not prove to be such an attractive opportunity then.

With the DLF land parcel acquisition completed, what are your plans for it?

It will be a separate residential project as all the related permissions are in place. I really cannot share details about it at this stage.

HDIL seen monetising 2 million sq ft TDRs

This story first appeared in DNA Money edition on Wednesday, Nov 14, 2012.

Housing Development & Infrastructure Ltd (HDIL) is likely to see a major contribution from TDR (transfer of development rights) business to its revenues in the second half of this fiscal.

Currently, the TDR market is sluggish due to a slow pick-up in construction activity and slower TDR generation, but analysts expect revival in both demand and generation in H2.

“Though construction and sales activities have remained sluggish in Mumbai even after the new development control rules norms, we expect a revival in TDR demand and generation in the next few quarters. We believe with HDIL’s Kurla project getting conversion approval from commercial to residential project, around 2 million sq ft of TDR will get generated and monetised in H2. Further, any revival of the Mumbai International Airport Ltd project would also be the key trigger for TDR generation,” said Shaleen Silori, research analyst, ICICI Securities in a recent note on the company.

The Mumbai-based realtor’s entire sales during the September quarter were from floor space index (FSI) sale of around 2.4 million square feet in Virar, a Mumbai suburb, which helped the company to post a 52% rise in net profit for the quarter at Rs 158.56 crore.

Sarang Wadhawan, vice chairman and managing director, HDIL, said the company’s focus continues to be on project execution and debt reduction. “We expect positive and robust growth in the future quarters as well,” said Wadhawan.

HDIL had launched two new projects of around 1.4 million sq ft in the second quarter and added 16 million sq ft project in Virar, which, analysts said, would enable further FSI sales in the coming quarters.

“The realtor’s strategy of deleveraging its balance sheet through FSI / asset sales augurs well. The company is targeting sales of around 1.5 million sq ft – 2 million sq ft per quarter going forward with realisation of over Rs 1,000 per sq ft,” said Silori.

The analyst said that HDIL’s project execution remains steady with four developments expected to achieve completion this fiscal, exerting a positive impact on the profit & loss account during the second half. “This would keep the earnings buoyant,” the analyst said.

HDIL’s gross debt currently stands at Rs4,030 crore, which is down Rs71 crore from the June quarter. The company is expected to repay around Rs600 crore of debt by the end of this fiscal.

DLF net profit plunges 63%

This story first appeared in DNA Money edition on Tuesday, Nov 13, 2012.

DLF Ltd, India’s largest realtor, disappointed Street by posting significant decline in consolidated profit after tax (PAT) for the second quarter. Net profit fell a whopping 63% to Rs138.51 crore compared with analyst expectations of Rs295.9 crore, which, in itself, was a decline of 20.9% on-year.

DLF’s consolidated net profit in the second quarter stood at Rs372.41 crore. On a standalone basis, the realtor registered a net loss of Rs19.54 crore in the quarter, compared with a net profit of Rs302.57 crore in the same period last year.

DLF officials were not available for a comment, nor did the company website detail the accounts at the time of going to press.
Overall income from operations (sales and other receipts) declined a little over 19% to Rs2,039.54 crore against Rs2,532.41 crore on-year previously.

Realty sector analysts said while decline in home sales appears to be the key reason behind the lower profitability, margin pressure could also another key reason. “Their margins have come down to 36% compared with 40-45% earlier. This could also be due to increase in costs,” said an analyst requesting not to be quoted because he hadn’t dissected the numbers till late Monday evening.

Reforms, rupee set Deal Street on fire

This story first appeared in DNA Money edition on Monday, Nov 12, 2012.

The Deal Street has suddenly come alive.

Twenty-seven merger and acquisitions (M&A) were struck in the first nine days of November as compared to about 50 for the entire October. What has changed for the deal makers to shake off the somnolence of the last two years?

Experts said though overall business environment hasn’t changed much, a slew ofreforms by the government since September is leading the companies to bet on a rosy future. 
Vikram Hosangdy, partner — M&A, KPMG India, said, “Sentiment had deteriorated significantly in the September quarter and now most people believe we are at the bottom of the slowdown with a sharp lowering of interest rates seen from January 2013.”

A range of reforms around foreign direct investment as well as the Shome Committee’s stance on tax regulations have improved deal making sentiments, especially on inbound transactions, Raja Lahiri, partner - transaction advisory services, Grant Thornton India LLP, said.

With the western economies in shambles, assets are available there at cheap valuations and a sudden surge in rupee has dramatically reduced costs for overseas acquisitions.
“Outbound transactions like Rain Commodities buying Ruetgers, Infosys snapping up Lodestone and the Sun Pharma’s Dusa deal will continue as long as there is a strategic fit and valuations are reasonable,” said Lahiri.

Though it is rising, the rupee is still comparatively weak against the dollar, which makes Indian assets also cheaper for foreign buyers, said Rajeev Kakkad, associate director, Protiviti Consulting.

Most of the deals are happening in the $25-100 million range mostly in pharma, manufacturing, services, industrials and consumer sectors. However, deals are still taking a longer 6-8 months for getting finalised compared with 3-4 months seen in the peak times.

Experts see the trend continuing and valuations staying high as there are more buyers than sellers. A lot of Indian companies are sitting on huge cash reserves and are actively pursing opportunistic acquisitions in international markets, they said.

Diversifying their businesses for forward or backward integration and expanding presence outside India appear to be major drivers. 
“Many large India groups believe this is a very good time to buy in Europe and US,” said Hosangdy.

And Indian financial services firms, too, are at the forefront of the deal making activity. JM Financial has advised on four large transactions including the $2.1 billion acquisition of a majority stake in United Spirits by Diageo. It was also the sole financial advisor to Wipro for demerger of its diversified businesses.

Indian Hotels may sweeten offer for Orient-Express

This story first appeared in DNA Money edition on Saturday, Nov 10, 2012.

Indian Hotels Co Ltd is expected to sweeten its offer to take over Orient-Express Hotels at a 40% premium after the New York Stock Exchange-listed global luxury hotels operator turned it down on Thursday.

The Tata group hospitality flagship and its partner Montezemolo & Partners, which is backed by Ferrari chairman, are mulling their next move after OEH thwarted the bid saying it undervalued the company.

Will it be a new offer with more premium, a hostile takeover or will IHCL drop the bid altogether, move on and focus on optimising its revenues which are under pressure?

Experts feel the Indian company would opt for the first.

Kaushik Vardharajan, managing director, HVS Global Hospitality Services - India, a hospitality consultant, sees OEH as a larger strategic fit and the easiest way for IHCL to expand in the global hospitality market. “If you look at the previous offer, it was significantly higher than the current share price as market conditions were different then. IHCL certainly can hike the offer,” he said.

This is the second time OEH board has rebuffed IHCL’s proposal and an increased offer will give out a message to the shareholders that the Indian company is very serious about its intent, he said.

“OEH is still at a very attractive valuation,” said Siddhartha Khemka, equity research analyst at Centrum Broking.

It is, however, not clear how much more can IHCL offer.

“They still have some room to increase the offer and can hike it by another 20%,” said a top hotelier.

Experts feel IHCL should hike the offer and see how the OEH board reacts.

“I don’t understand on what basis OEH called it an undervalued offer because IHCL offered a significantly higher price than OEH’s market value,” said a top hospitality consultant. “Their stock price has fallen so much from the peak and any increase of late is purely because of IHCL’s offer. IHCL made a great offer especially when the overall economic environment is not very conducive for OEH’s business. It will take OEH at least a couple of years if not more to stabilise.”

In case IHCL hikes the offer, experts said, the OEH board will have tough time explaining shareholders why it should not be lapped up.

“The US and Europe markets are still reeling under pressure and turning around business in a short span will be a tough task. IHCL will get support from OEH shareholders given its intention to reward the shareholders in such stressed market conditions,” said a top hospitality consultant.

Also, more suitors may pop up and jack up the bidding price.

“It is quite possible that private equity players like Blackstone or some other entity sitting on huge investable cash could make a counter offer. If that happens, acquiring OEH will become a very expensive affair for IHCL,” said a top official from an investment advisory.

Indian Hotels delivers a minor loss

This story first appeared in DNA Money edition on Wednesday, Nov 7, 2012.

Indian Hotels Company Limited (IHCL), the Tata group hospitality flagship, will expand its room capacity by almost 11% next fiscal with the addition of 13 hotels. Over 1,500 guest rooms are to swell its global portfolio of 13,887 rooms in 115 hotels.

The additions will be made through a mix of management contracts and new developments (to be built by IHCL, its associated companies or its subsidiary, the Roots Corporation).

Raymond Bickson, IHCL’s MD, said, “Almost 70% investment has already been made in our upcoming hotel in Dwarka which is likely to open sometime in 2013-14. The Vivanta in Guwahati will be funded over the next two years. Roots will open six Ginger hotels, Taj GVK will open a Taj hotel at Terminal 1C in Mumbai and Benaras Hotels will open a Gateway hotel at Gondia.”

IHCL officials said its latest quarterly and half-yearly profits were impacted by factors like lean season, higher costs of power and fuel, significant increase in the new inventory.

All this led to IHCL’s net loss of `6 crore is the second quarter (Q2; July-September), a contrast to the entire group’s net loss of `2 crore in the first half (H1; April-September). But its Q2 turnover of `379 crore is higher than `358 crore in Q2 of last fiscal, while H1 turnover rose 7% to `775 crore.

“The 23% growth in new hotel rooms was higher than the demand that grew only by 20%, which has led to decline in average room rates (ARR) and revenue per available room (RevPAR) for the overall industry in general,” said Deepa Harris, senior vice-president of sales and marketing at IHCL.

IHCL is, however, very optimistic about demand growth in H2. “The second half is the main business season for the entire hospitality industry, and IHCL has seen good business. We are expecting increased occupancy levels around 75%, up from around 65% in the first half, and a marginal increase of 5-8% in room rates in the coming two quarters,” said Anil P Goel, executive director of finance, IHCL.

The company has invested significantly in greenfield developments in the last couple of years, so will pause now to stabilise the hotels, IHCL officials said. Business outside India will take more time to stabilise; the US market alone will take another 18-24 months, they said.

On the controversial move on Orient-Express Hotels, the IHCL managers said since both are listed entities, they would not like to comment until they hear from the OEH board.

Erstwhile promoter of Share Khan, Shripal Morakhia forays into sports-based entertainment business

Shripal Morakhia, the erstwhile promoter of SSKI & Share Khan, has entered the sports-based entertainment centre business with the launch of first facility in Mumbai. Morakhia has partnered with Star India, one of India's leading television entertainment networks, for this unique entertainment centre concept. Cricket icon Sachin Tendulkar is also associated with this unique venture.

Christened ‘Smaaash - Inspired by Star’ the centre is spread over 24,000 square feet and is located at Kamla Mills Compound, Lower Parel in Mumbai. Through this venture, Star India has taken the brand "STAR" beyond television. Smaaash is a sports-based entertainment centre with cricket at its core and stands for active entertainment. 

According to Star India, it is a fully immersive and an addictive experience, which will provide the audiences an opportunity to play cricket LIVE.

Uday Shankar, CEO, STAR India, said, "Star has always stood for thought leadership and with 'Smaaash - Inspired by Star' we take brand Star beyond television to create an immersive entertainment experience for audiences."

Smaaash is positioned as the largest aspirational, immersive, recreational destination in India and is in line with Star’s promise of inspiring and entertaining audiences and will help bring this promise alive.

The centre has 8 cricket lanes, an F&B arena and other arcade games including a F1 simulator, FPS simulator etc. The cricket lanes enable LIVE cricket play using the Hawk-Eye and Bola technology. Sachin Tendulkar’s involvement has been very active in this concept during the initial testing as well as in designing the overall experience.

Star, whose acquisition of ESS' sports broadcast businesses is now virtually imminent, will provide international quality cricket experience to sport buffs through the centre. Smaaash will bring an international quality cricket experience, where the players can face off against top cricketers like Sachin Tendulkar, Brett Lee, Anil Kumble and many others in a simulated environment.

Mahindra Holidays acquires 49% in Thailand's Infinity Hospitalities Group

Mahindra Holidays, India’s largest vacation ownership company, has added a new property in Thailand by acquiring 49% equity share capital of Infinity Hospitalities Group Co Ltd. Financial details related to this deal were not disclosed.

This deal brings to the company's existing hotels network, a 77-room resort in Bangkok operating as Mac Boutique Suites. While continuing to cater to other travelers, the resort will be available to members of Club Mahindra through a special arrangement and a nominal access fee.

According to Rajiv Sawhney, managing director and CEO, Mahindra Holidays & Resorts India Limited (MHRIL), this is the first step towards what MHRIL believes will be the next big movement in family holidays. "Building presence where Indians love to go - outside of India - was been considered for a while especially in locations like Dubai, Sri Lanka, Malaysia including Bangkok. With this addition, our strategy has begun to take shape,” said Sawhney.

Mac Boutique Suites is a full-service resort in Sukhumvit, Bangkok’s bustling business district. Located only a few steps away from BTS (Nana Station), a few minutes away from the  MRT (subway Asoke Station) and  only five minutes to the expressway, it offers easy access to a wide array of shopping, entertainment, museums and international cuisines.

Among the top 10 vacation ownership companies globally with over 150,000 members, MHRIL's international presence includes resort properties in Thailand, Malaysia and Austria. The last 10-odd months have seen the company add 781 rooms across the resort network and its resort count currently stands at 43.

Strong movie content driving occupancy levels in multiplexes

Film exhibition firm PVR witnessed a good second quarter with consolidated revenues growing 37% driven primarily by box office performance and food and beverage (F&B) revenue growth. Strong movie content is driving occupancy levels across multiplexes thereby leading to double digit growth in same store sales, said a top company official.

According to Nitin Sood, chief financial officer, PVR Ltd, there is upward trending in the consumption pattern evident from over 40% occupancy levels across its multiplexes over the last few quarters. "Content certainly has been of great help and as content improves, it definitely reflects in overall better occupancy across cinemas," he said.

Footfalls for the second quarter fiscal 2013 (Q2FY'13) increased 28-29%. Occupancy levels also increased disproportionately over the last couple of quarters thus leading to scaling up of return on capital scaling. This growth, industry experts said, is largely driven by occupancy than pricing.

Commenting on the observation, Sood said the company took a conscious call last year to cut down on pricing and re-look at the customer base. "We sustained this for 12 months. And starting last quarter, we have increased pricing so this quarter reflects a double digit growth of 10-11% in pricing as well. We need to try and sustain the pricing growth over the balance part of the year," he said.

Industry experts are of the opinion that the trending in consumption has been happening for slightly longer than a year now. The change in consumption patterns are mainly because of maturing markets and opening of new multiplexes. While there certainly is some kind of a shift, there really is no scientific answer to it.

"New cinemas driven by good content are attracting more and more consumers to the multiplexes. As the economy moves up and new malls open people will go out, try to consume and see these products. Cinema is an activity one can probably do every week unlike shopping and some of the other activities," said an analyst with a domestic brokerage.

"In fact, if you look at our numbers for the last six quarters and plot it consecutively, you will see double digit same store growth," said Sood adding that the company is seeing an increase even in some of their cinemas that have been operational for seven to eight years now.

As the film exhibition business is largely driven by content, there are concerns in the market that occupancy levels of over 40% across screens may not be sustainable. Industry experts said this business also has cycles like other businesses and that while things may look good in the short-term, same cannot be said in the long term.

"Will the occupancy levels be 40% forever, it will be very difficult to say as the nature of the business is such that it will have content cycles with hit years where business may not be so great and vice-versa. There would be properties that may not open to expectation on day one and take time mature," said an analyst with a leading domestic firm.

Echoing the sentiments, Sood said, "While the outlook for the next 12-18 months looks very encouraging with a good content pipeline even for the next year. To say this is how the industry will always remain will be slightly incorrect. In terms of the period ahead for the balance part of the year, I think we have a very decent third quarter with a lineup of some big films releasing during Diwali followed by end of December. Overall the content pipeline is looking very exciting for the next three to four months and we hope to maintain and sustain these occupancies and footfalls."

On the expansion front, PVR management had indicated Rs 150 crore - excluding deposits that's an additional 5-10% - has been earmarked as capital expenditure for opening about 82 screens in the beginning of the year. During the first six months the company has opened about 31 screens. On Friday (November 2, 2012) it opened an eight screen multiplex at Market City, Kurla in addition to their first IMAX in Koramangala, Bangalore. "With 40-odd screens added, roughly about 50% of the portfolio is open in terms of what was indicated earlier and are sticking to our guidance," said Sood.

As for its food and beverage (F&B) operations is concerned, the company currently operates two food courts in Delhi and there are no immediate plans to expand that format as it's been operated mainly through sub-leasing than building their own brands.

According to Sood, the management is looking at the F&B piece and believe it needs to be repositioned the way food and beverage is currently sold in the cinema. "Consumers are getting stressed for time and clearly the variety of F&B being offered in the cinema has to change. In the earlier days, one of the key concerns was the huge pricing difference between what was available in the cinema and outside. This gap has been narrowed to some extent," said Sood.

Industry experts also feel if the consumers are given quality F&B items for consumption in the cinema they will be more than willing to increase their food intake inside the cinema as compared to having a separate meal experience outside. "These are the two factors we are working on and if you look at our F&B spend-per-head growth has been in double digits. We believe, this is one area that needs repositioning and work more on given the kind of opportunity that exists in this space," said Sood.

On the sub-segmentation of the screens with Director's Cut, Gold Class, Premiere and mainstream, Sood said that an exclusive luxury cinema is positioned as Director's Cut and if the facility is part of a larger cinema then it is positioned as Gold Class. "Pricing is very catchment specific. For instance in Delhi, if the property is in South Delhi area the pricing differential could be three times and can go as high as Rs 1,000 on a weekend. But if the multiplex is in some other catchment, it would be a function of what the relative pricing for a normal ticket in that market is," he said.

PVR took 15 years since inception to open 160-odd screens in the country. In terms of roll-out, the company is adding 150-odd screens between FY'13 and '14 with the hope that as these screens come on board they do well and change the company's overall growth trajectory in the coming years.

Property prices will hold or increase from here, very unlikely to go down

Pirojsha Godrej

This Q&A first appeared in DNA Money edition on Friday, November 2, 2012.

Pirojsha Godrej, managing director and chief executive officer of Godrej Properties Ltd, cannot hide his glee. The company posted a whopping 67.5% on-year growth in net profit for the second quarter of the financial year 2012-13 on Thursday, and appears intent on sustaining the momentum. In an interview soon after announcing the results, Godrej took stock of the current property market, consumer sentiment and the road ahead for his company.

Will there ever be a correction in real-estate prices? Prices seem to be heading only north.
Pricing and price correction... very tricky question that, something we get asked very often. Six months ago, there was talk about a possible price correction; but the answer is, most probably, it won't happen, though prices always can come down. One needs to appreciate that there are factors on all sides. The developers are also facing constraints — whether in the form of much higher input costs, labour cost, and cost of funds, which hurts both the developer as well as the customer looking to buy an apartment. The substantial increase in costs over the last couple of years makes meaningful price cuts quite unlikely.

Anybody who claims to know what will happen to prices in a complex market like real estate is probably fooling himself. There are more signs that point to prices holding steady or going up than there are of them coming down. We didn't think prices would come down even when the economic conditions and consumer sentiment were [at their] worst. Predicting price trends in the very near term is very difficult. I don't think there is a compelling case for prices trending lower in the next 6-12 months.

What is your sense of the overall business environment in the Indian real-estate sector?
The sector clearly has gone through a bit of a difficult period over the past 12 months. Interest rates have been high, gross domestic product (GDP) growth has obviously been under pressure. Our sense is that particularly in the residential space, there is good demand for good quality projects in the right locations at reasonable price points. And we have seen evidence of that from the market response to some of our recent launches in Bangalore and Gurgaon. Across cities, we have been able to maintain fairly good traction. That said, we certainly think there are some things on the horizon that are likely to improve the momentum in the sector, including, hopefully, interest rates starting to come down. It is very positive to see the momentum the government has gained now on reforms and, hopefully, that can be taken to a logical conclusion.

But consumer sentiment doesn't appear to be improving. One look at the flat registration numbers of recent times explains it all. Where is the traction?
That may be true for the sector as a whole, which clearly has not seen good traction; but we have not really witnessed a decline in sales and the consumer sentiment. We had launched the second phase of our Vikhroli, Mumbai, project last year and the price per square foot for the recent third phase launch is 35% higher than what it was in the same period last year. We have received great response from the market even at the increased price point. So, fundamentally, the demand exists and we have already witnessed it.

What do you think needs to be done to improve consumer sentiment? Are the necessary steps being taken in that direction?
In my view, consumer sentiment would be better if the economy and people's perception of it get back on track. On that front, while we have had a very disappointing 12-18 months, the last 30-45 days have been very encouraging. If that kind of momentum can be sustained by the government on the policy side, it will be very good news. I think over time we are hopeful that the RBI [Reserve Bank of India] will also be supportive of this kind of growth through interest rate reduction which most people expect to unfold in the coming months. What is also very encouraging to see is that the momentum/thinking is correct and now it is all about making sure they are able to get the results as expected. I think the finance minister has done a fabulous job of coming in and very quickly announcing a set of measures that I think would go a long way in increasing business confidence as well as the consumer sentiment.

The second quarter has been quite exciting for the company. Could you share the key business highlights?
It certainly has been a good one on most operating metrics. We have seen strong growth in total revenue to the extent of 64% over the corresponding period last year. Booking growth, which is new sales and indicative of the likely growth that will come in revenue in the future, has been more strong with growth in value terms of about 327% for the second quarter this fiscal. A lot of booking growth has actually come from the launch of Godrej Summit in Gurgaon. We were able to sell the entire first phase of the project constituting about 1 million square feet in one day. Our ebitda [earnings before interest, tax, depreciation and amortisation] increased by more than 100% from Rs34.6 crore to Rs72.3 crore while net profit grew from Rs19.5 crore to Rs32.6 crore, representing an increase of 67.5% on a year-on-year basis. So, all in all, it has been a very satisfying second quarter.

Could you share some details about new launches in the coming months?
We have several project launches coming in. In October, we launched two projects in Bangalore — Godrej Gold County and Godrej Electronic City. Over the next couple of months, we will be launching the second phase of Godrej Summit, Gurgaon. We launched on Dussehra the third phase of our Vikhroli project in Mumbai and will have additional phases of project launches in Pune, Nagpur, Kolkata and Ahmedabad. Mumbai will see several new projects getting launched. One of them is a redevelopment project called Godrej Central in Chembur and another is our commercial project in the Bandra Kurla Complex (BKC) which is a joint venture with Jet Airways.

Are you looking at financial partners for the Chembur and BKC projects?
We have already done a private equity (PE) partnership with Sun-Apollo for the Chembur project which would be a 6-7 lakh square foot development. For the BKC project, we are open to a PE partnership though nothing has been finalised. We don't have any particular amount in mind, it will depend on the structure of the deal. The total project size of the BKC development is a little bit larger than we had anticipated, which is positive news. We expect it now to be about 1.25 million square feet. Of that, a little over 2 lakh sq ft will be used by Jet Airways for their corporate space, so we will have slightly over a million square feet available for sale and/or lease. The exact ratio between sale and lease is something that will be decided as the project unfolds.

What is your outlook for the coming quarters?
I would imagine the second half of the fiscal will be a busy period with a host of launches starting from the festive season. The third quarter has also started on a good note. We have had a few good launches in Bangalore and many more are slated over the next couple of months and the upcoming financial year. And we hope to maintain the strong sales momentum in these developments. We maintain that even if things don't improve, we feel pretty good [that] given the kind of projects we have added and the launches we have in the pipeline we would be able to deliver strong growth picture. Clearly that ability would be further enhanced if the economic climate in general improves in the coming quarters.

Hyatt takes over management of IHHR Hospitality's five Ista hotels

Hyatt Hotels Corporation, the New York Stock Exchange (NYSE) listed global hospitality company, has entered into an agreement with IHHR Hospitality Pvt Ltd (IHHR) to take over management of five Ista hotels in India. As a result of this agreement, the Ista hotels will now be re-branded as Hyatt. This development in the works was first reported in August, 2012. You can read the earlier story here.

Commenting on the development, Ratnesh Verma, senior vice president - real estate and development, Hyatt Hotels & Resorts-Asia-Pacific, said the company sees a perfect fit with IHHR's forward-thinking philosophy and vision. "It is our endeavor to create preference for our brand by having hotels in markets where our customers are traveling. This opportunity allows Hyatt to further consolidate its distribution in India and offer customers a choice in new markets such as Bangalore, Amritsar and Ahmedabad," said Verma.

While industry experts had earlier expressed that an arrangement of this nature might call for an equity position by Hyatt Hotels, a company spokesperson cleared the air saying, "There is no equity investment from our side and this is a management agreement for the five hotels." 

This deal is expected to be a trend setting development in the Indian hospitality market potentially paving way for more such arrangements in the near future.

However, a section of the industry experts are of the opinion that Hyatt has only created confusion in the minds of the customers by signing this deal. 

"One also needs to question the dilution of the brand's equity in its haste to get the portfolio. Just to cite an example, the Hyatt Regency hotel in Pune is struggling with 38 sq m rooms and now there will be another plain Hyatt right opposite with a 28 sq m room. To the market who call the present hotel Hyatt and the new a Hyatt as well, this is nothing but a confusion. I mean how is Hyatt going to distinguish the brands when a guest will wonder what's different between a Regency, Place and just Hyatt. And so will Hyatt owners, I believe.

"Everyone in the hospitality industry wants growth but it should not be done at the cost of diluting the equity of their brands. Imagine a Park Hyatt owner spending upwards of Rs 1.5 crore per key seeing his hotel called Hyatt vis-a-vis a Hyatt or Hyatt place owner spending Rs 50 lakh a key and also being called Hyatt. You got to feel sorry for the Park Hyatt owner. I think the same is true for Marriott as well. Whether a JW or a core Marriott or a Courtyard or Fairfield, Marriott is Marriott," said a top industry official. 

As per the agreements, signed by both parties on Monday i.e. October 29, 2012 in London, the entire re-branding exercise is expected to be completed by the end of this fiscal i.e. March 2013. IHHR Hospitality entered the five-star business hotels accommodation segment with the launch of its first Ista branded hotel back in 2006 in Bangalore. Featuring 143 guestrooms and suites, it was followed by Ista hotel launches in other cities like Hyderabad (165 guestrooms), Amristar (248 guestrooms), Pune (221 guestrooms) and Ahmedabad (169 guestrooms). The five hotels portfolio collectively have a total inventory of 946 guestrooms and suites.

Among investors in IHHR Hospitality include US-based financial services provider Morgan Stanley, which had bought 26% stake for about $40 million (Rs 160 crore) sometime in 2007. Media reports had earlier indicated that Morgan Stanley was looking to sell this stake and that the London-based C&C Alpha Group founded by Bhanu Choudhrie (IHHR Hospitality's biggest stakeholder) was likely to acquire it. Once concluded, C&C Alpha Group's 62% stake in IHHR Hospitality (held by its hospitality subsidiary Shanti Hospitality Group Ltd) would increase to over 80%.

Industry sources indicated that the Morgan Stanley exit transaction has been concluded and that the exit has happened either at par or at a loss. An email send to C&C Alpha Group's UK office remained unanswered. Morgan Stanley could not be reached for a comment.

C&C Alpha Group currently has investments across six sectors viz. healthcare, hospitality, real estate, aviation, utilities and agriculture. According to the company website, Shanti Hospitality currently has portfolio and pipeline projects spread across the Indian, Asian and European continents. The hotel company owns eight operational hotels and manages 12 hotels and resorts across the globe under the brands of Ananda, Nira, Ista, Amritara and Nidra.

While officials at IHHR Hospitality were not available to comment on this development, Ashok Khanna, managing director, IHHR, in a media statement, said, "The time is now right to step back to our role as owners and hand these Ista hotels to Hyatt, which can take the business to the next level, through its marketing and brand strength," said Khanna adding that the deal will also allow IHHR to re-focus its efforts on further developments and its other brands, which include destination spa brand Ananda in the Himalayas.

The re-branding will mark the entry of the fourth brand from Hyatt Hotels' portfolio into India. It is, however, not very clear what happens to the Ista brand post this management takeover. Industry experts however, said that IHHR Hospitality is likely to bury the six-year old identity it created to enter the city hotels segment of the Indian hospitality industry.

Currently, India has five Hyatt Regency hotels (Mumbai, Pune, Delhi, Chennai and Kolkata), two Grand Hyatt hotels (Mumbai and Goa), and three Park Hyatt hotels (Goa, Chennai and Hyderabad). The Hyatt Place brand will be the next to enter India, with Hyatt Place Hampi opening later this year, followed by Hyatt Place Pune, Hinjewadi. The next six months will also mark the opening of three other Hyatt hotels in India viz. Hyatt Regency Gurgaon, Hyatt Regency Ludhiana and Hyatt Raipur. The international hotel company's current development pipeline in India include more than 50 Hyatt-branded hotels, which are expected to add more than 12,000 rooms.

Bajaj Elec fast-tracks delayed tower units

This story first appeared in DNA Money edition on Friday, Oct 26, 2012.

Bajaj Electricals is looking to fast-track completion of transmission line tower (TLT) projects which have run into significant time and cost overruns and are hurting the performance of its engineering and projects (E&P) division.

Hit by the delays, the E&P segment’s revenues for the quarter ended September 30 fell 22.5% at Rs132.71 crore.

Shekhar Bajaj, chairman and managing director, Bajaj Electricals, said, “We realised that until we don’t complete the site and hand it over, we would not get our last payment and the retention money does not come by as well. Therefore, we decided to work on the sites and close as many as possible,” he said.

As on April 2011, Bajaj Electricals had 24 active TLT sites. While some of them have been closed in the last fiscal, about nine sites will be closed this fiscal, the company said.

“We are hoping that by the end of March 2013 we should be able to bring the overall number down to six sites and begin the next fiscal on a positive note,” said Bajaj, adding that another five will be completed by September.

Some of the recent orders, Bajaj said, offered reasonable margins and are more profitable in the long run.

In the fans business, it is looking to strengthen itself in the premium segment in which it has been going slow for sometime.

Anant Bajaj, joint managing director, Bajaj Electricals, said, “We are introducing a range of premium products which will add significantly to our sales in the coming quarters.”

With the subsidised gas cylinders per household coming down to six a year, the firm sees huge opportunity for its induction cookers.“Last year induction cookers registered sales of Rs100 crore and we are looking at Rs150 crore this fiscal,” said Bajaj.


While the company had clocked Rs 3,200 crore revenue in the last fiscal, the management is eyeing an overall turnover of Rs 3,700 crore this fiscal.

The company reported 7.8% year on year growth in net profit for the second quarter at Rs26.92 crore, while net sales rose 4.7% to Rs733.81 crore. During the quarter, lighting and consumer durable segments achieved total revenue of Rs201.65 crore and Rs398.69 crore, respectively.

ITC sees hotel business picking up in a year

This Q&A first appeared in DNA Money edition on Thursday, Oct 25, 2012.

Nakul Anand

ITC Hotels, India’s second-largest hotel chain, has close to 100 properties in over 70 destinations across four brands. The company, also among the most profitable hospitality firms in the country, has ten LEED Platinum rated super-premium luxury hotels in the country. Nakul Anand, executive director, ITC Ltd, speaks about his company’s plans and the Indian hospitality market in general. Excerpts from the interview:

A lot of new room inventory has been added in the local hospitality market. Do you think that has caused a glut?
The inventory addition is as anticipated, though I feel the demand for hotel rooms could have increased faster than supply. The current market scenario is true for the entire country, mainly because there is economic slowdown and our source markets are significantly under pressure.

How long do you think it will take the industry to reach a more optimal level of business operations?
I am a great optimist and would imagine most of the issues getting ironed out and demand taking off within a year. Business environment will be much better in the third-fourth quarter next fiscal.

The Indian hospitality market has evolved considerably. How has ITC kept pace?
Our philosophy always has been to make a meaningful contribution in multiple ways. We believe that business can and must play a role in enriching the country’s tourism landscape. Therefore, we have consciously moved from a single dimension of financial value creation to a triple bottomline philosophy of creating value that encompasses economic, environmental and social dimensions.
Our strategy is to clearly focus on a few niche areas and provide unique and differentiated value propositions to our guests. We have straddled the entire value chain and now cater to the emerging needs of travellers in different parts of the country through our four brands.

How do you compare with other hotel companies in the country?
If you compare profitability (profit as a percentage of turnover) of other hotel businesses in our competitive set, we are the most profitable hotel company in India.

There were reports about challenging times ahead for luxury hotels. What is your take on it?
One needs to understand that hospitality is a long-term business. While there can be short-term blips due to various reasons, there is always a turnaround. We have seen many such phases in the past and that hasn’t really stopped the industry from growing. Our growth plans over the last three decades have been driven by investments. We continue to pursue this strategy and add large properties to our portfolio of super luxury hotels. Our recent addition in the luxury segment stands as testimony of our vision. We currently have 3-4 hotels under construction in the premium segment and 6-7 at the drawing board stage.

So there is no change in your outlay for future developments?
There is no change in our development outlay of Rs9,000 crore. Our current development pipeline has 40 hotels under various stages of development and all the funding will be done through internal sources.

We are confident of doubling room capacity across brands in the next couple of years while simultaneously adding newer developments. In the years to come, we will have a portfolio of 150 hotels either owned or managed by us under one of the four brands.

Your new hotel ITC Grand Chola, Chennai already has competition from a host of domestic and international brands. How do you see this property shaping up in the coming years?
Luckily in hotels business, one is able to foresee trends 3-4 years ahead as most hotels take five years from ground breaking to get operational. We knew there will be additional supply and 4-5 new hotels would come into the market. We also know there will not be any significant new supply in the next five years. So there is a decent time to establish ourselves as a leader. Our hotel is uniquely positioned in the Chennai hospitality market and has already created a lot of excitement in a short span. Given the kind of facilities offered (accommodation, meeting / banquet space and restaurants), we foresee becoming a preferred destination for a host of corporate and social activities both domestic and international. In fact, we see in the MICE (meetings, incentives, conferences and events) segment, pharmaceuticals and automobile sectors contributing significantly to the hotel’s revenues.

You are developing a hotel in Colombo. What factors led to the move? Is ITC getting aggressive on international presence?
It was a good opportunity in Colombo and the land parcel we got is a very ideal location for a hotel project. Sri Lanka is in proximity to India so managing the business affairs would be easier. We are looking at opportunities in Nepal but haven’t finalised anything yet. International presence for ITC is mainly driven by a pre-condition, that is, countries or destinations in close proximity to India and regularly frequented by Indian outbound travellers. So places like Singapore, Hong Kong, Malaysia, Thailand, etc would make for a strategic fit, else why should I have a hotel in the middle of nowhere. The whole world is coming to India to set up hotels and there has to be a very compelling reason to set up hotels in international markets.

Lupin says buyouts tough as firms clinging to brands

This story appeared in DNA Money edition on Wednesday, Oct 24, 2012.

Lupin, the Mumbai-based drugmaker which is looking to acquire brands on war footing, said it is becoming challenging to forge deals as large companies are not parting with their assets easily.

“Everyone is trying to conserve cash flow from existing products and are very sensitive to losing anything out of their earnings,” said Vinita Gupta, director, Lupin Ltd and group president and CEO Lupin Pharmaceuticals Inc, on the second quarter earnings call on Tuesday.

She said the company is looking at every possible acquisition opportunity, both in terms of products and firms. Lupin has been looking to buy drug brands overseas mainly in the US for some time to reduce reliance on less profitable generic medicines.

“From a corporate development standpoint, it is a priority area and the majority of our focus is on processing and closing opportunities to add to our brand business,” she said.

The company has been targeting multiple assets in the areas including pediatric, dermatology, ophthalmology and respiratory ailments.

Gupta during the first quarter earnings call had said the company was looking to close one or two opportunities in the current fiscal.

On the kind of valuations the company was ready to offer, Kamal K Sharma, managing director, Lupin, said it was dependent on the depth of intellectual property, the competitive dynamics around the product, the therapeutic group and the potential of the drug.

“So one can talk of multiple of sales, Ebitda, etc and it could vary from one time to four times sales. We as a company have strong norms and discipline. While we have to match business interest, we also have to match financial interest. We are very actively looking and brand portfolio in the US. It is a very important part of our business, but we won’t acquire something for the heck of acquiring,” said Sharma.

Meanwhile, the company plans to introduce at least 15 new generic products in the US this fiscal. “Oral contraceptives will form a major chunk with about 8 to 10 products,” said Gupta. The drugmaker has launched five products in the US thus far this fiscal.

Lupin reported a 8.84% year on year rise in consolidated net profit to `290.5 crore on the back of robust sales across the US, India and Japan. Net sales increased 29% to Rs2,239.3 crore year on year.

During the second quarter, the company’s formulation sales across the US and Europe grew 40% to Rs835.5 crore year on year, while India formulations business grew 18% to Rs606.4 crore. Japan sales grew 85% to Rs301.8 crore.

At Horniman Circle opener, Starbucks sets premium tone

My colleague Nupur Anand co-authored this story appearing in DNA Money edition on Saturday, Oct 20, 2012.

The Seattle, US-headquartered Starbucks on Friday opened its first store in India, kickstarting what could be a sedate rollout, going ahead.

Yet, if the 4,500 sq ft store in the historic Elphinstone Building in South Mumbai’s Horniman Circle — with an upscale brand Hermes at sniffing distance — is any indication, the company has positioned itself at the premium end, about 50-60% costlier than Café Coffee Day.

The experience is akin to “walking into a shrine of Starbucks coffee”, Howard Schultz, chairman, president and CEO, Starbucks Coffee Company, said of the flagship store, which sports tastefully done up, wood-and-leather interiors.

Two more stores are slated to open in the city next week — in the Taj Mahal Palace Annexe (Gateway of India) and the Oberoi Mall in Goregaon East — before the coffee chain hits Delhi and elsewhere with another 3 stores in the next 6 months.

Beyond that, officials of Tata Starbucks Ltd, an equal joint venture (JV) between New York Stock Exchange-listed Starbucks Coffee Company and BSE-listed Tata Global Beverages Ltd, were tight-lipped, underscoring a circumspect debut.

The bigger question, say experts, is whether Starbucks can really crack the India code, coming in now?

Schultz appeared gung-ho. “The size of the market is very large. If you look at other countries where we have stores — 700 in mainland China, 800 in the UK, 1,000 in Japan, 8,000 in the US — this is a very large opportunity and putting an overall number for stores here will not be possible at this stage. But with Tata’s help and the size and scale of this market, we believe this is where we will grow significantly and make investments over the near future,” he said.

Experts feel the brand name, too, will work its magic — at least initially.

“It is a very successful brand. They have been able to establish themselves in other Asian markets such as China, which is predominantly a tea drinking country. In fact, they are believed to have created the demand for coffee in the Chinese market and have met with roaring success. Therefore, India may not be difficult either,” said Arvind Singhal, chairman of retail consultancy Technopak Advisors.

Technopak expects India’s cafe market to touch $410 million by 2017, up from $230 million now, with the number of cafes rising from 1,950 to 2,900.

Others feel Starbucks will benefit from localisation, as it has in other markets. For instance, in China, it worked with ingredients like green tea.

Something similar will work just fine here, said Gaurav Sharma, assistant vice president, Technova.

Schultz appeared to concur. “Though we will be importing coffee beans, for the first time in our history, we will be sourcing and roasting coffee locally,” he said.

“This apart, we will also offer a host of localised food items sourced from Tata’s food and beverage operations. So, you will see items like elaichi mawa croissant, murg tikka panini, tandoori paneer roll among others,” said Avani Saglani Davda, CEO, Tata Starbucks Ltd.

But will this be enough, given that competition is rife, with several players in the fray?

Singhal of Technopak feels it would take a herculean effort to upstage the market leader, Café Coffee Day. But of course, the positioning of two brands is different and so a clone war is not impending, he is quick to add.

Some analyst believes that in order to succeed Starbucks will have to focus on the location and quality.

To be sure, the café chain is nota leader in all the markets that it is present in, Devangshu Dutta, chief executive, Third Eyesight retail points out. According to him, pricing, product offering and location will decide its success.

Yet others feel the company will do well to focus on smaller sizes and cheaper beverages.

The world’s largest coffee chain will need options that are priced as much as 33% lower than its US offerings to succeed in the Indian market, said Saloni Nangia, president at Technopak Advisors.

For example, Café Coffee Day, the nation’s biggest chain with 1,360 stores across the country, sells a regular cup of cappuccino for Rs61 in Mumbai, while its closest competitor Barista, with 318 stores, sells for Rs69. This, in a nation where the World Bank says about two-thirds of the people live on less than $2 (around Rs108 as at Friday’s conversion) a day.

That may prompt Starbucks to sell its drinks for about $2-2.50 a cup, Nangia said, compared with about $4 in Beijing and $3.50 in the US.

But it may well choose not to do that and remain a premium player, said Larry Miller, an Atlanta-based analyst at RBC Capital Markets Corp. “I wouldn’t be surprised to see similar levels to other markets around the world, which would be a pretty expensive proposition for the Indian consumer,” he said. “In China, their products are just as expensive as they are in the US.”

(With inputs from Bloomberg)

IHCL looking to board Orient-Express again

This story first appeared in DNA Money edition on Friday, Oct 19, 2012.

Five years after its bid for Orient-Express Hotels was thwarted, the Tata Group-owned Indian Hotels Co (IHCL) has once again thrown the lasso around the New York Stock Exchange-listed global operator of high-end hotels, cruise and train services.

IHCL, the group’s hospitality flagship, along with Charme II Fund, an Italian fund managed by Montezemolo and Partners SpA, has offered to buy the 93.1% stake which it does not own in the Hamilton, Bermuda-headquartered company and take the company private.

IHCL is offering $12.63 per share in cash, valuing Orient-Express at $1.86 billion (Rs 9,936 crore), including its net debt.

The all-cash offer represents a 40% premium to Orient-Express’ closing stock price on October 17, the last trading day prior to this announcement, and a 45.2% premium to its 10-trading day average of closing stock price.

The Orient-Express stock shot up 41.35% intra-day to $12.75 and was trading about 31% at $11.80 at 9.30 pm IST following the offer. The stock has shed 78% since September 2007 when IHCL first made its bid.

IHCL, through Samsara Properties Ltd, a wholly owned subsidiary, currently holds around 7% of Orient-Express.

On Wednesday, the IHCL board authorised the company to make an offer to the Orient-Express board to acquire 93.1% Class A common shares.

“We believe this premium all-cash offer represents a compelling and immediate value proposition for Orient-Express’ shareholders and provides it with access to the additional capital necessary to preserve its properties and heritage while potentially expanding its footprint,” said R K Krishna Kumar, vice chairman, IHCL.

“Despite the takeover, Orient-Express would remain an independent and autonomous company with its own Board of directors,” said an IHCL spokesperson.

IHCL is understood to have raised a war chest for the buy, including debt financing from Bank of America NA, ICICI Bank and Standard Chartered Bank.

Holcim royalty scythe hangs on ACC, Ambuja

This story first appeared in DNA Money edition on Thursday, Oct 18, 2012.

Swiss cement major Holcim will likely collect a hefty royalty from its two Indian listed subsidiaries ACC and Ambuja Cement, according to persistent but unconfirmed market talk. Experts tracking the sector said the talk has been around for some time, though ACC and Ambuja have been denying any such move.

Now, with the two companies in the silent period ahead of the announcement of quarterly results today, the buzz appears set to continue for a while. For the record, ACC officials declined to comment, while Ambuja Cement officials could not be reached.

Industry sources said parent Holcim has apparently been considering imposition of royalty charge to the extent of 2% of sales on both of its subsidiaries. It could be levied anytime in the third (Q3) or fourth quarter (Q4) of this fiscal.

The said 2% could translate into around or upwards of Rs 58 crore for ACC, given its April-June sales of Rs 2,919 crore. On an annual basis, it could be around or upwards of Rs 200 crore, given total sales of Rs 10,012 crore in 2011.

Similarly, for Ambuja, 2% royalty charge could mean an outgo of around or upwards of Rs 51 crore, given its April-June sales of Rs 2,566 crore. On an annual basis, it could be around or upwards of Rs 171 crore, given its sales of Rs 8,531 crore in 2011.

Such massive payouts could have serious implications for the two companies’ profitability, one reason the market buzz would not die.
For example, a levy of 1% of total sales may impact the earnings per share (EPS), an indicator of a company’s profitability, by 8-9% for ACC and 6-7% for Ambuja.

The EPS for ACC was Rs 69.29 for 2011 and Rs 8.07 for the quarter ended June; for Ambuja, it was Rs 8.02 and Rs 3.05, respectively.
Yet, an analyst with a leading domestic brokerage firm said: “I have recently interacted with officials of Ambuja. They said no discussion on royalty took place between the Holcim management and them and that there has been no royalty-related communication from Holcim either.”

But industry sources said it is normal for Holcim to collect royalty fees for access to technology, brand and technical support services from its units. Its units in Indonesia and the Philippines, for example, are understood to be paying around 2% of sales in royalty.

“In case of ACC and Ambuja, neither is using the Holcim brand. But it could be that Holcim is providing some technology and support services for which it may levy a charge,” said an analyst from a domestic brokerage. Other sources said ACC and Ambuja are already paying around 0.5% of sales to Holcim for the services of its corporate services group.

A Morgan Stanley study in June 2012 hinted that the two Indian companies may be paying fees to entities wholly owned by Holcim for access to technology, IT implementation, support and knowledge.

This, however, could not be immediately confirmed.

The Morgan Stanley study revealed that Holcim’s Asian subsidiaries pay royalty to their parent through Holcim’s Asian arms. Such payments are categorised under three heads: trademark fees; technology for operation; technical support / IT services and support.

“Interestingly, ACC and Ambuja Cements also currently make payments to these entities (Holcim’s Asian arms that receive royalty payments from Holcim’s other Asian subsidiaries). While the basis and nature of such payments are not defined in the annual report, ACC’s annual report describes them as ‘Payment for Training / Technical Consultancy’,” the Morgan Stanley report had stated.

The report also noted that ACC and Ambuja Cement are strong Indian brands and hence, it is unlikely they would pay any trademark fees.

Zee Learn expands orbit with kids channel

This story first appeared in DNA Money edition on Tuesday, Oct 16, 2012.

Zee Group, India’s leading media player, has taken yet another pioneering initiative in the television industry by launching the country’s first edutainment television channel for kids.

ZeeQ, the new channel launched by Zee Learn, the BSE-listed educational division of the group, will cater to the education and entertainment needs of children in the 4-14 years age group.

Punit Goenka, MD & CEO, Zee Entertainment Enterprises Ltd, the group flagship, said the new channel is in line with the group’s principle of improving human capital.

“For two decades Zee has been making a difference in the lives of millions, and now ZeeQ will sustain it further. It is a step ahead in fostering curiosity among children through fun and entertainment,” he said, adding that the new channel will have a mix of home produced and acquired content.

ZeeQ’s broadcast operations would be managed by Zee Entertainment and Enterprises Ltd, while Zee Learn will look after the content and channel management.

The 24-hour paid-for channel would be offered across various direct-to-home (DTH) and digital cable platforms across the country from November 5. Pricing and bundling details will be announced closer to the launch date as negotiations with multi-system operators and DTH players are still on, the officials said.

On investment, Navneet Anhal, COO, Zee Learn, said, “Being a new business, significant investment has been made in this channel. We are focusing efforts on market exposure now.”

The programming content has been planned after taking into account Zee Learn’s experiences in running a chain of pre-schools and under Kidzee (over 1,000 centres) and K-12 under Mount Litera Zee School (over 100 centres).

“During the production and acquisition of content, we took into consideration the learnings of Zee Learn from the 18 years of interacting with as many as 300,000 students, parents and teachers across India. This has helped us make the edutainment content engaging and relevant to the needs of Indian children,” said Anhal.

Subhadarshi Tripathi, business head, ZeeQ, said the programming and scheduling approach of ZeeQ’s content is geared to help children with subliminal education while keeping them engaged in never-before edutainment fashion.

“The channel will have 210 minutes (three-and-a-half hours) of live action content and 90 minutes (one-and-a-half hours) of animated content for now. We have also acquired Emmy Award wining shows from across the globe for a period of five years. The feeds of these shows will also be made available in Hindi. The ratio of Hindi to English language programming on the channel will be 70:30. Some proportion of programming on the channel will also be in Hinglish,” said Tripathi.

The advertising market for kids entertainment channels in India is estimated to be around `250 crore growing at 10% year on year.

While the market is fiercely competitive, Zee Learn officials said child edutainment is a completely new space in India with ZeeQ as the only focused Indian player.

“We will be creating a completely new market with the channel,” said Tripathi.

Samhi scoops up Formule 1 hotels from Accor's Barque

This story first appeared in DNA Money edition on Tuesday, Oct 16, 2012.

French hospitality major Accor has divested a 60% stake in its wholly owned subsidiary Barque Hotels to Samhi Hotels.

Barque has a portfolio of 15 Formule 1 hotel projects, of which two (in Greater Noida and Ahmedabad) are operational and the rest are in various stages of development. By the end of 2013, the group expects to have almost half-a-dozen Formule 1 hotels, with new properties in Pune, Bangalore, Gurgaon and Hyderabad coming on stream.

“The deal is in line with our global strategy of ‘asset-light’ development, which allows us to focus on operating a consistently high quality portfolio of hotels that spans the spectrum from luxury to budget,” said Gaurav Bhushan, chief development and investment officer, Accor Asia-Pacific.

Accor will maintain a 40% stake in the hotels and will continue to operate them under long-term operating agreements.

In a non-exclusive arrangement with Samhi, the French company will also retain the right to own and/or develop further Formule 1 projects in India.

The deal size was not disclosed.

Ashish Jakhanwala, managing director and CEO, Samhi Hotels Pvt Ltd, said, Samhi will invest $40-50 million in Barque Hotels in the next 18 months.

“An entry-level international hotel brand was missing in our portfolio of brands,” said Jakhanwala, pointing out that the segment has huge demand, which Formule 1 can help tap.

He said the ownership structure is likely to remain in the same proportion unless a new structure is devised in future.

According to Jakhanwala, the deal was initiated in February this year.

The approach of Samhi, set up in December 2010, has been to work with multiple hotel brands and already has Courtyard by Marriott and Royal Orchid, Hyatt Place and Fairfield in its portfolio.

Earlier this year, it had acquired BSE-listed Royal Orchid Hotels’ Ahmedabad hotel operated by Royal Orchid Ahmedabad.

The world’s leading hotel operator and market leader in Europe, Accor is present in 92 countries with nearly 3,500 hotels and 4.4 lakh rooms. Besides Formule 1, its portfolio of hotel brands includes Sofitel, Pullman, MGallery, Novotel, Suite Novotel, Mercure, Adagio and ibis.