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.

Abbott entity sues Reddy's over patented thyroid injection 'Zemplar'

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

US-based AbbVie Inc, a spun-off entity of of Abbott Laboratories, has dragged Dr Reddy’s Laboratories (DRL) to court over its patented thyroid injection Zemplar.

AbbVie has alleged that DRL infringed its patents on six counts.

“DRL committed an act of infringement by filing an ANDA (Abbreviated New Drug Application) with a Paragraph IV Certification that seeks FDA-marketing approval for DRL generic versions of AbbVie’s paricalcitol injection products prior to expiration of the patents-in-suit,” goes the petition filed by AbbVie along with Wisconsin Alumni Research Foundation (WARF) in the US District Court for the District of Delaware.

Zemplar (generic paricalcitol) is a drug used for the prevention and treatment of secondary hyperparathyroidism (excessive secretion of parathyroid hormone) associated with chronic renal failure.

According to its annual report, AbbVie made $383 million from Zemplar sales in 2012, including $230 million from the US.

As per the petition, DRL filed an ANDA with the US Food and Drug Administration (USFDA) seeking approval to sell a generic copy of Zemplar injectable products in 2 microgram/ml and 5 microgram/ml formulations prior to the expiration of the patents owned by and exclusively licensed to the complainants.

A Dr Reddy’s official called it a routine matter with no additional information to share.

Analysts tracking the developments echoed the sentiment, terming it positive for DRL and cited the infringement case as part of the patent challenge in US generic filing process.

“Typically, a drugmaker files with the USFDA for approval to market a product and if the patent is existing, the company has to challenge it. DRL has just challenged the patent and as per law, AbbVie has responded within 45 days, else it would have been understood that the drug inventor agrees the patent is not valid and is giving it away. Suing DRL is nothing but a routine matter and part of business,” said a pharma analyst with a leading international brokerage.

Now that the complainants have filed a suit, as per US law, a 30-month stay gets levied on the DRL filing. Once the stay period gets over, the parties involved will start litigating over the patent. The matter is likely to take over 3-4 years to get sorted out.

The alleged infringement relates to three patents – patent numbers 799 and 758, which Abbott had transferred to AbbVie and which will expire on April 8, 2018, and patent number 815, which WARF holds the rights to and which will expire on July 13, 2015.

Rupee skating down, Glenmark, Ranbaxy feel the heat

This story first appeared in DNA Money edition on Wednesday June 19, 2013.

The depreciating rupee is set to negatively impact the profitability of pharma companies like Glenmark and Ranbaxy this quarter.

Going by Barclays Capital, the two companies are set to take a hit of 38% and 11%, respectively, in their earnings per share (EPS).

“We expect Glenmark and Ranbaxy to observe net forex losses due to high forex loans and significant amount of outstanding hedges,” Balaji Prasad and Rohit Goel, analysts with Barclays Capital, said in a note.

“We expect Ranbaxy to be impacted the most on a cash EPS basis due to derivative losses on its $962 million of derivatives at the end of the quarter ended March. In addition, Glenmark’s cash EPS is also expected to be affected largely due to interest liabilities on its foreign currency debt,” the duo noted.

EPS serves as an indicator of a company’s profitability and is calculated as net income minus dividend on preferred stock divided by average outstanding shares.

Glenmark officials did not respond to a questionnaire emailed on Monday.

Ranbaxy refrained from sharing company specific information, but said the rupee depreciation would improve the competitiveness of the Indian pharmaceutical industry where exports are concerned. “However, in the immediate future, companies that have relied on dollar financing will need to consider the impact of the depreciation in its financial statements,” said Indrajit Banerjee, president and chief financial officer, Ranbaxy.

In case of a net rupee depreciation of 11% (60/$) in this quarter, the analysts said the pecking order would remain the same. However, the negative impact for Glenmark and Ranbaxy would increase to 17% and 58%, respectively.

Among companies that are expected to see a gain in EPS due to a the rupee fall this quarter are Sun Pharma (5.5%), Cipla (3.3%), Dr Reddy’s (1.9%) and Lupin (1.7%).

“At a broad level, the weakening of the rupee is a sign of the pressures we are facing on the fiscal and trade deficit front; it does weaken the government’s efforts at increasing foreign inflows and could impact overall economic health,” said Ramesh Swaminathan, chief financial officer, Lupin Ltd.

The Barclays analysts noted that Lupin continues to perform with a 59% year on year growth in April on the back of market share gains across key products like Cefdinir and Lamivud, in addition to sustained share in key products like Fenofibrate and Ziprasidone. “Eleven Abbreviated New Drug Application approvals in the last three months reaffirm our confidence on Lupin’s strong future product pipeline.”

Swaminathan added that whilst the rupee weakening in general helps exporters achieve better realisations, the fact remains that this volatility takes most of them by surprise since they would have covered their exposures to some extent only; and that hedge might not ultimately result in gains.

“At Lupin, we have been prudent in achieving a balance between hedge and exposures and have calibrated our approach to ring-fence ourselves from this volatility. Our hedge percentage will pay dividends were this depreciation to continue,” said Swaminathan.

Barclays’ coverage group (comprising Ranbaxy, Glenmark, Sun Pharma, Cipla, Dr Reddy’s Laboratories and Lupin) generated 34.2% of sales from the US region last fiscal and the analysts expect it will continue to be in the same range in the current one. The report said these companies also incur considerable operational expenditure in foreign currency, particularly dollar, and that a falling rupee versus the dollar has a positive impact on the sector, which is a net exporter.

Giving teeth to modern dental care business

Vikram Vora

An edited version of this story first appeared in DNA Money on Tuesday June 18, 2013.

A production engineer armed with a masters in management studies (MMS) in marketing from Mumbai University, Vikram Vora slogged it out for over three (2005-2009) in his family business selling dental materials like any other management graduate. He would wait for hours at the dental clinics for his turn to make a sales pitch and in the process identified a huge gap -- lack of transparency between patients and doctors -- that left a lot of patients dissatisfied with the treatments rendered.

Vora also realised that the awareness level about dental treatments among patients was very low. Adding to their confusion (before committing for a particular treatment) was the fact that doctors would very rarely educate them about various aspects related to the treatment. His analysis of the situation brought out the fact that in the entire process, the patient would not get to know what was the problem, why it happened, what are the optional treatments, what is the best and least expensive procedure, what is the right (affordable) option to go for, how much time will it take to heal etc.

"I believed if somebody could create a service and bridge this gap, it would be a great success. And that is how the entire idea of Mydentist evolved and achieved the current status in the market today," said 34 year old Vora who co-founded Total Dental Care Pvt Ltd (TDC) with his brother Parth. With 45 dental clinics in Mumbai and Pune, TDC is India's largest multi-speciality dental clinic chain.

What sets Mydentist clinics apart from other standalone dental centres is the fact that it offers a standardised and published rate card for all its services - something that was not standard practice in India untill recently. Dentists are employed on monthly salaries (Rs 16,000 for entry level), instead of the usual profit-sharing model, and work in shifts of four hours each.

"We started the trend of offering quotations for every treatment being offered. The approach initially received negative feelers from the industry but that's not the situation now. People have matured and have accepted that it's here to stay. In fact, a lot of doctors have started following the quotation approach and standards of treatments have improved to a great extent," said Vora.

As a result of this the pricing gap between a standalone dentist and Mydentist has decreased though the later would still be marginally lower in pricing as compared to a grade B dentist. The charges at Mydentist (price list also displayed on the company website) range from Rs 300 for cleaning per sitting to Rs 90,000 for clear aligners (clear removable cosmetic appliance designed for minor teeth movement of patients).

Elucidating the different category of doctors in the dentistry field, Vora said there are grade A doctors focusing only on the elite clientele and hence quote exorbitantly high charges. "Then there is grade C catering to larger number of people in the lower middle-class category at a significantly lower cost than the grade A practitioners. Then there are the likes of charitable trusts and government hospitals that operate at an almost negligible cost. So we target the audience between the average middle-class and the charitable trust," said Vora.

Interestingly the venture was never envisaged with the idea of making it the largest dental clinic chain in the country. The six clinic chain (undisclosed funding from family) was earlier operated under the banner Total Dental Care and sometime in January 2010, Vora's ex-employer Anand Lunia (angel investor and founder of IndiaQuotient) suggested taking the private equity route if he wanted the business expand from six to 100 or more clinics.

An introduction to Seedfund was facilitated by Lunia post which the angel investor incubated the idea. The first thing Seedfund did was to get on board book evangelist, mentor and business consultant R Sriram (erstwhile CEO & MD of Crossword Bookstore). During his six months with TDC, Sriram structured the entire business, design as well as coined the brand name Mydentist.

"There was a complete change from pre-incubation stage. The entire language and communication was framed early-on post the incubation including the logo and the brand name," said Vora.

The existing six clinics thus had to shut down to bring in the consistency in offerings and brand standards being laid down under the new identity. The first Mydentist branded outlet was opened in Vile Parle (Mumbai) in April 2011.

"Pre-incubation, I don't think we had the structural knowledge to run a business that would grow to this magnitude. Today we have around 250 doctors, 60 consultants, over 200 support staff. We'll be adding 5 clinics to the portfolio taking the total number to 50 clinics to by the end of this month. This concrete business as is visible to the market today would not have been possible without inputs from the fund, consultants and individual mentors," confesses Vora.

A 300 square foot Mydentist clinic calls for an overall investment of Rs 35 lakh of which majority (Rs 20 lakh) goes into buying imported equipment (from vendors in India). Two doctors work three shifts in the day. On an average the Mydentist chain gets close to 8,000 patients every month and the number is set to reach 10,000 patients per month by June end. Each centre will take 18-20 months to breakeven. The nature of treatments sought by most patients are pretty much the same -- root canal, scaling, polishing, crowns and bridges and other common treatments -- as any other standalone dental clinic would provide. The clinic has started offering orthodontics services and has tied-up with financial institutions to offer and EMI scheme as orthodontics tend to be expensive.

Not sharing commercial details of the business, Vora said that revenues have increased over three times when compared with the peak revenue figures of the pre-incubation stage.

Seeing potential in the business idea, a new fund - Asian Healthcare Fund by the Burman family, promoters Dabur Group - has invested Rs 40 crore in Mydentist. As a result, the ownership of TDC is now equally shared between the promoters and the two angel investors.

The funds raised will largely be used for growth as the company is targeting 100 clinics by March 2014 and 150 clinics in another 18 months from now. The new additions will also happen in Mumbai and Pune while cities like Ahmedabad and Surat are being considered as well.

Expanding in a phased manner is a key discussion point in our partnership with IMAX: Ajay Bijli

An edited version of this Q&A first appeared in DNA Money edition on Monday June 17, 2013.

Actor Aamir Khan inaugurating PVR Imax theatre along with
Ajay Bijli, CMD, PVR Ltd, and Sanjeev Bijli, JMD, PVR Ltd

Sitting atop in the Indian film exhibition industry with 365 screens in 86 cinemas in 36 cities across India, PVR is targeting 500 screens by 2015. The company also launched the IMAX screen at PVR Phoenix Mills (Lower Parel, Mumbai) showcasing Hollywood blockbuster Man of Steel. Ajay Bijli, chairman and managing director, PVR Ltd speaks about the association with IMAX, merger/integration of Cinemax, and growth plans. Edited excerpts:

I noticed, your IMAX screens in Bangalore and Mumbai have Pepsi and Kotak as title sponsors. What is the rational behind this approach?

Film exhibition business primarily has three revenue streams viz theatrical, food and beverage and, sponsorship and advertising. We look at properties and opportunities wherein we can get a sponsor associated with anything that we do onscreen advertising. One such opportunity came post signing up with IMAX and we took it to a sponsor to see their reaction.

Worldwide, corporates, banks, beverage brands seek associations that offer a very unique experience. Since our investment is large and if we could get a sponsor it will eases off the pressure to some extent. But we pursue this approach property by property like for the IMAX Bangalore property we have Pepsi as the title sponsor while it's Kotak for IMAX at Phoenix Mills. The tenure for such deals is five years, I cannot share the commercials associated with it though.

Is there a commitment from PVR in terms of the number of IMAX screens in India?

We will set up IMAX screens wherever there is an opportunity. We can go up to 10 screens but I'm very particular about where these screens come up. Besides a perfect location we look for things like right demographic profile, liking for Hollywood films etc. We are primarily an exhibitor but wherever we feel can add value and give a much better experience by adding another attraction we'll do it.

In phase I, the potential exists only in those catchments where Hollywood films are well received and we represent about 45% of such films in India. However, I think IMAX has a great future and with Indian films also getting converted (into IMAX) there will be a huge propensity of people to watch such films. So phase II might see a much larger footprint with huge pipeline of Indian films. In fact, expanding in a phased manner is a key discussion point in our partnership with IMAX.

Cinemax recently got merged with PVR, could you throw some light on how are we going about the two brands now considering both enjoy great equity in certain key markets?

We are looking at economies of scale at different levels. There is no hurry for us to convert everything into PVR as conversion is an expensive proposition as well. We have done audits and are now looking at those areas where consumer experience can be improved first. People need to feel the presence of PVR even though name is not PVR.

So from projection, sound systems, food and beverage and online initiatives, box-office experience, advertising and marketing etc will have to be upgraded and extended to all locations to bring them at par with PVR. We are cherry-picking properties that have not been renovated for a long time. These I believe can be converted into PVR provided they are in the right catchments. Then there are certain brand new properties with PVR level standards like the five-screen Cinemax at Pacific Mall (Subhash Nagar, New Delhi) that has already been converted to PVR at a cost of Rs 67 lakh.

What are the possibilities of brand Cinemax getting completely phased out over 3-5 years from now? Or Cinemax could become a sub-brand?

Not really. I'm finding that Cinemax is also in great locations so we'll have to be very careful how go about it. I don't think the brand will get phased out completely as it is very expensive to change. Looking at economies of scale from a stakeholders perspective having one brand will be very fantastic but we will have to see how it goes. We might look at a prefix / hybrid option for some while others could be completely PVR. We are still thinking along those lines.

You are also adding a good number of screens organically. What are the plans like in this fiscal?

We have been consistently adding 50-60 screens in the last couple of years and the target for this fiscal is 90-odd screens. We adopt a very cautious approach to capital deployment and certainly not in a big hurry. We are pretty much on track and have already opened 25-odd screens. In another fortnight we will be opening 17 screens taking the total to 382 screens. We should be 500 screens in total by 2015.

On the revenues streams you'd mentioned earlier, what is the ratio like between the three to the company's overall revenues?

Films contribute the largest at 67% followed by 23% from food and beverage and 10% from advertising. Profitability-wise advertising is number one contributor to company's bottom-line. And with new screens getting operational, we see advertising contributing close to 15% to the overall revenues in the future. Interestingly, we probably have the highest (across the globe) per screen revenue generated from advertising.

People have expressed displeasure on facebook and twitter on the long duration advertising when watching a movie.

Advertisers look for big blockbuster releases and it largely happens with such films. So when Yeh Jawaani happened people have carried back that impression. I agree it was very long.

In fact, some people posted that it was 45 mins of advertising...

No no... 45 minutes to I will never allow... I've seen Ye Jawaani twice and I think maximum it was 12-14 minutes of advertising in the pre-movie stage and another 8-9 minutes in the interval. So all in all it would have been 20-22 minutes of advertising. One needs to understand that the company has been promoted by movie-buffs and I'd personally hate if there was advertising beyond a limit.

Also, there was a certain pent-up demand already in the market. Ye Jawaani came after IPL which already had a issue. So the pent-up demand was from everyone; consumer were dying to see a good movie, advertisers wanted to go back to the medium of cinema and exhibitors wanted to maximise the number of shows. So we were all basically waiting from something big to happen and that's why the increase in duration of advertising.

Could you throw some light on the ticket pricing trends, how's it looking like in this fiscal?

I think it would be the usual 10-12% hike in ticket rates mainly due to inflation. People take the highest ticket price paid over the weekend or the price for the last row as the benchmark. I'd look at the average ticket price (ATP) -- morning, evening, weekday, weekend -- and that is still low at Rs 175.

The F&B part of your business is also getting bigger by the day.

The F&B vertical has now reached Rs 300 crore in overall revenues and we believe it should really be PVR's focus along with cinemas especially something that's a very natural extension to the cinema business. So we won't do a standalone restaurants. The F&B eco-system will be built around the multiplexes and our intention is to have F&B outlets for pre- and post-movie viewing experiences especially in the newer multiplexes.

We may also end up creating a few brands in the quick service restaurants (QSR) on our own. The first one (a polished casual dining restaurant with an average per cover charge of Rs 1,100) we have done is our own brand. Others in the pipeline will be a mix of outsource, joint ventures and franchise. It will be too early to disclose details as talks are still on and we are evaluating the viability / feasibility.

How is the leisure vertical shaping up? Are there more concepts in the offering?

We have joint venture company that operated five bowling centres already and will be opening three more this year. The unit level profitability here is very good. Ice skating was something being explored but our market research showed that too many accidents would happen hence the idea was dropped.

You now have significant backing from L Capital and Renuka Ramnath's Multiples private equity fund holding 15.8% stake. So any future funding requirement will be done through them are some new names could join in?

I doesn't look like there will be any further funding requirement as of now. Also we work on negative cash flow and have close to Rs 300 crore in operating revenues (ebitda) which is good enough to meet any funding requirements. Unless there is another acquisition we may plan which is very unlikely. Cinemax was a very big deal and we need to digest it properly. So we need to be sensible about how to grow the company and there is no such hurry. We are already growing by 30-40% annually which is more than enough.

Swiss Sotax plans India plan, acquires Dr Schleuniger Pharmatron for $15 million

This story first appeared in DNA Money edition on Saturday, June 15, 2013.

Sotax AG, a Swiss dissolution systems maker, is setting up a unit in India to make affordable systems for the pharmaceutical market here.

The company is scouting for a location which most likely would be in Navi Mumbai.

Jean-Louis Raton, head of business units-Europe and Asia-Pacific, Sotax, said the company has been looking at a few places in Mumbai/Navi Mumbai and soon finalise the location soon.

"The India unit will help us reduce the price gap between locally-made dissolution systems that are priced seven times lower than Sotax's. The India facility will manufacture 400 units in the first year, which would be increased gradually to 1,000 units," said Raton.

The company plans to start the facility by August 2014.

Being Swiss-made, the dissolution system attracts 30% customs duty in India.

So, while a basic Sotax dissolution bath (manual) is priced Rs 12 lakh the locally made system costs Rs 3 lakh.

The Sotax's India-made systems will cost Rs 4 lakh.

"Despite being made in India, the systems will still be over 30% premium to the local systems," said L Ramaswamy, managing director, Sotax India.

While the company did not share investment, official said it will be not be very capital intensive as the facility will be more of an assembly line.

"Approximately 60% of the parts would be sourced from India and the balance will be imported. The India facility will only focus on assembling the system. Set-up cost will not be high because we will be hiring and leasing the machinery," said Ramaswamy. The company will, however, continue to import the semi-automatic and fully-automatic dissolution systems from Switzerland.

In another development, Sotax has acquired another Swiss firm Dr Schleuniger Pharmatron, a maker of physical test equipment for solid dosage and specialists in complete tablet hardness testing solution, for $15 million.

Sotax registered global revenues of $48 million and with the acquisition of Dr Schleuniger Pharmatron it is expected to swell to $58 million.

Holger Herrmann, vice president-sales and marketing, Dr Schleuniger Pharmatron, said the company has over 800 installations in India.

Sotax's India manufacturing facility will also manufacture Dr Schleuniger Pharmatron products / solutions and would also cater to overseas markets.

Foreseeing significant growth opportunities, Sotax will also relocate its headquarters from China to India in July.

Sotax has set up a R&D centre at Navi Mumbai to develop an indigenous system and plans to set up a contract lab in India to cater to testing requirements of European pharma companies.

Mahindra Holidays to add 1,000 rooms

This story first appeared in DNA Money edition on Thursday, June 13, 2013.

Vacation ownership company Mahindra Holidays plans to add over 1,000 apartments to its existing portfolio of 2,500 in the next two years.

Though the company didn’t share investment details, a top official said it had spent Rs 500 crore on adding a similar number in the last two years.

Rajiv Sawhney, CEO, Mahindra Holidays & Resorts India, said, “We currently have 10 sites with development potential. While some are pure part of our land bank, a few others are existing properties with potential for room additions. The 1,000 rooms added in the last couple of years were on the base of 1,400 rooms, which is over 70% increase in room availability for our members.”

A part of the Mahindra Group, the company currently owns 70% of the 2,500 rooms in its portfolio, while the balance is on long-term lease.

The additions were made in a concentrated manner across domestic destinations including Goa, Kerala, Himachal Pradesh, Jaisalmer and Udaipur. Bangkok and Dubai were were added in overseas destinations.

“We are actively pursuing something in Sri Lanka and will take a call on it in a year,” said Sawhney.

Targeting customers in the 30-35 year age group, the company will aggressively use the digital medium to reach out and convert them into memberships. Mahindra Holidays has also restructured its product offerings by discontinuing Zest (for senior citizens) and Mahindra Homestays vertical.

It has been consistently adding 17,000 members in the last two fiscals and currently has a total membership of 165,000. The cost of buying a Club Mahindra membership is in Rs 2-18 lakh range and has increased 10% year on year. Sawhney said the increase is mainly due to inflation.

It has made structural changes in terms of customer acquisition and will largely look at referrals, social/digital and company websites for fresh membership acquisition.

Sun to pay Pfizer, Takeda Rs 3K cr over Protonix patent

This story first appeared in DNA Money edition on Thursday, June 13, 2013.

Sun Pharmaceutical Industries will pay as much as Rs 3,178 crore ($550 million) this year as its share of the settlement reached with US-based Pfizer Inc and Japan’s Takeda Pharma in the case of patent infringement relating to generic Protonix, a blockbuster acid reflux medicine.

Israel’s Teva will pay a further $1.6 billion – half this year and half in the next – taking the total payout to $2.15 billion.

The patent on Protonix was held by Nycomed, now a Takeda subsidiary. Protonix was licensed to Wyeth, which is now owned by Pfizer.

Of the $2.15 billion, Pfizer will receive 64% ($1.38 billion) and Takeda the rest ($774 million).

The settlement comes after a nearly 10-year legal battle, Pfizer said in a statement.

While a jury in New Jersey federal court determined that the generic launches by Teva and Sun violated US patent, the parties in litigation reached the settlement shortly after the commencement of a trial to determine damages in the same court. 

As part of the settlement, both Teva and Sun admitted their sales of generic pantoprazole infringed the patent that was held valid by the court. As a result, Teva and Sun will now compensate Pfizer’s subsidiary Wyeth and Takeda for damages suffered.

Pfizer officials were not available to share further details.

Sun Pharma officials were also not available for comment. However, the company said in a statement that the New Jersey court began a jury trial on June 3. “This settlement now culminates the ongoing litigation. Sun Pharma can continue to sell its generic pantoprazole in the US,” it said.

In February, Teva had said it may face legal losses of up to $2.07 billion to resolve the case. Sun Pharma on its part had set aside Rs 584 crore ($100 million) towards potential damages to Pfizer. However, it will now have to pay additional $450 million in final settlement.

Analysts don’t see it as a positive out-of-court settlement for Sun Pharma.

“The agreed amount is way too high for such a settlement. It will also restrict Sun’s ability to look for acquisitions,” Daljeet Kohli, head of research at brokerage IndiaNivesh, told Reuters.

However, according to Suruchi Jain, equity research analyst - pharma, Morningstar India, paying up $550 million should not be an issue for Sun Pharma, considering it is sitting on $1 billion cash. “The company has enough cash as $740 million are with Sun Pharma and the balance is on Taro’s books. Sun may, however, have to raise more debt for any acquisitions it plans to do in this fiscal. Considering that Sun is practically a debt-free company, raising money should not be an issue as well.”

But with cash balance reducing by $550 million, Sun Pharma’s valuations are likely to take a hit.

“But it won’t be a huge hit. Rough estimates indicate reduction in its valuation by about 3%,” said Jain. With agencies

Road developers see polls slowing NHAI awards

This story first appeared in DNA Money edition on Wednesday, June 12, 2013.

Road developers are set to see challenging business environment continuing this fiscal as the National Highways Authority of India (NHAI), which missed project award targets in the last year by a huge margin, may not meet them due to elections ahead.

“On one side the government may try to implement things quickly, but by the time it happens the model code of conduct will come into play,”  said a senior Hindustan Construction Co official.

There are just six months left as post December this year the entire government machinery will come to standstill, he said.

Analysts too said while the build operate and transfer (BOT) projects will be constrained due to economic slowdown and fund crunch, the engineering procurement and construction (EPC) projects would slow due to elections.

Parvez Qazi, equity research analyst, Edelweiss Capital, said,  “A tough economic environment will constrain BOT awards. Achieving the fiscal 2014 target hinges largely on award of 3,500-4,000 km EPC projects. The timing of central and state elections will also cast its shadow on the project award,” Qazi said in a recent report.

The Ministry of Road Transport and Highways had set an ambitious target of awarding 8,800 km of road length in fiscal 2013, which was raised by the Prime Minister Office to 9,500 km.

NHAI, however, was able to award only 1,112 km projects.

For this fiscal, the road ministry has again set an ambitious target of awarding  9,000 km projects, about 50% through the EPC route.

“The target seems to be unachievable, given the continued impediments faced by the road sector. Delay in obtaining land, forest and environmental clearances, coupled with a slowdown, continue to hit projects,” CARE Ratings analyst Supriya Shetty said in a report on Tuesday.

CARE sees projects with the length of about 3,000 km being awarded this fiscal with some momentum on EPC mode.

On the BOT front, Qazi expects the project award to remain subdued (1,500-2,000 km), mainly due to the precarious financial condition of most developers and the need for regulatory clarity.

“EPC project award of 3,500-4,000 km is a definite possibility, provided elections do not play spoilsport,” Qazi said in the report.

Mukund Sapre, ED, IL&FS Transportation that specialises in BOT projects, said there was nothing really happening in the BOT space.

“A few bids have come but they have viability issues. A few more projects are likely to be announced, but we’ll have to wait and watch,” Sapre told dna.

While NHAI may have seen some success on the EPC with 4-5 projects seeing good response, industry sources said that companies that bid for these projects have quoted 30% below the average industry rates.

The HCC official said, “We don’t know if that’s sustainable in the long term. That’s one reason serious players aren’t participating in these bids. Going forward, large EPC jobs will have to be treated very cautiously. On the public-private partnership front, I don’t see much improvement as well, and with the elections just around the corner, things are only looking grim.”

Phase 2 digitisation spoils seen in 3-4 months

This story first appeared in DNA Money edition on Monday, June 10, 2013.

Benefits of the Phase 2 cable television digitisation are seen accruing to the books of leading broadcasters, multi-system operators (MSO) and direct-to-home (DTH) service providers as early as next quarter.

“We see a higher likelihood of cable TV average revenue per user (Arpu) increase in the next 3-4 months as MSOs introduce direct billing systems and begin charging on a gross basis (versus net basis currently). This may lead to higher DTH tariffs as well, which are usually pegged to the cable TV Arpus,” Sachin Salgaonkar, Paras Mehta, Swosti Chatterjee and Piyush Mubayi, equity analysts at Goldman Sachs India, said in a note dated June 5.

According to the Ministry of Information and Broadcasting (I&B),  over 85% of digitisation has been achieved in the 38 cities post the Phase 2 digital addressable system (DAS) deadline of March 31. While 15 cities have achieved nearly 100%, 24 cities in all have achieved more than 75% and 34 cities have achieved more than 50% digitisation.

With Phase 2 digitisation nearing completion, the market has seen a higher degree of consumer awareness, which is likely to ensure a smooth transition to digital systems in Phase 3 and Phase 4 rollouts. However, DTH companies are set to see greater traction than digital cable in the balance phases as majority of the Phase 3 and 4 locations do not have sufficient digital cable infrastructure to ensure smooth service delivery.

The Goldman Sachs analysts have thus reiterated ‘buy’ on Dish TV, saying the DTH leader is expected to benefit from Arpu increases in the medium term.

The I&B ministry said in a statement in April that against the targeted 1.6 crore set-top boxes (STBs) in Phase 2 digitisation, 1.36 crore STBs have been installed by the MSOs and DTH operators. As of April, the total number of installed cable TV STBs stood at 91.5 lakh compared with 44.5 lakh for DTH operators.

Industry experts are of the view that while DTH/MSOs continue seeding of STBs, the MSOs are almost in the last leg of finalising commercial contracts with broadcasters and local cable operators. Also, the broadcasters are likely to benefit over the longer term as current DAS contracts are for shorter terms (12-18 months), leaving room to renegotiate on a per subscriber basis as and when seeding achieves completion and more subscribers are added.

The Goldman Sachs report quoted Zee top management (from March quarter earnings call) as saying, “subscription revenue during the quarter has been the highest ever and the digitisation rollout will only improve in the medium term...”

The bulk of the 25.6% growth in subscription revenues, Zee management had said, was from domestic subscription revenues. The broadcaster expects a larger part of the growth to unravel in the Phase 3 and Phase 4 of digitisation.

“We note that broadcasters like Zee saw revenue increase earlier than MSOs as they renewed contracts under DAS, whereas MSOs started seeing revenue uplift led by seeding of boxes and activation revenues from Phase 1 and 2 of digitisation. With MSOs launching DAS packages, we expect Arpus to increase their billing system under DAS leading to revenue uplift for DTH operators,” the Goldman Sachs analysts said.

Sanjay Goyal, chief financial officer, Siti Cable Networks, said in a March-quarter earnings call that major digital cable players were in concerted play to expand their reach on the ground. “DAS cities and towns are getting stabilised gradually and we are already seeing majority of the collections for the first 3-4 months starting to flow into the system. While pricing has been increased, we expect it getting reflected either in the month of June or July. Also, tier-based pricing (ranging from Rs 100 + taxes to Rs 267 + taxes) has been finalised, which will get implemented in the next few months,” he said.

Foreign retailers can't have franchise setup, says government

This story first appeared in DNA Money edition on Friday, Jun 7, 2013.

Foreign multi-brand retailers will not be allowed to take the franchise route for expansion in the country, the government announced on Thursday.

“Front-end stores set up by MBRT (multi-brand retail trading) entity will have to be company-owned and company-operated only,” the Department of Industrial Policy and Promotion said in a clarification issued to global retailers such as Walmart, Tesco and Carrefour.

Further, these retailers will have to set up new front-end stores rather than through acquisition of existing stores, the DIPP said. Nor can they use the e-commerce route to sell their ware.

Industry experts said the government hasn’t done anything more than just reiterating the policy and giving its stand on the same.

“They have upheld the primacy of the state governments, clarified that MBRT and wholesale activity will be kept distinct, investment in back-end infrastructure will have to be additional and greenfield, the back-end company must be held 100% by the foreign MBR, procurement of fresh produce has not been covered etc,” said Vivek Gupta, partner - mergers and acquisitions (M&A) practice, BMR Advisors.

That puts paid to the retailers’ hopes that the government will define back-end infrastructure anew and clarify on sharing of back-end infrastructure such as supply chain, warehouses and cold storages, he said.

Goldie Dhama, associate director – regulatory services, PwC, also rued the lack of any new announcement. While the government has made it clear that 50% investment in back-end infrastructure will need to be made afresh and that such back-end infrastructure can be set up anywhere in the country, “the stipulation that front-end stores will have to be set up new and not through acquisition of existing stores will impact M&A in the sector and ability of Indian retailers to attract FDI in their existing businesses”, he said.

“Some other aspects like restricting sourcing from small and medium enterprises only for retail business, inability of the company to undertake business-to-business trade or appoint franchisees, etc do not seem to be business friendly,” said Dhama.

Some see the stipulation that foreign retailers can only have company-owned and operated stores as an opportunity for the real estate sector.

“That’s one way of looking at it, but do we really have that kind of infrastructure to cater to the requirement of these very large foreign multi-brand retailers? Where will they find a 3-4 lakh square foot of retail space to exclusively house their MBR stores in India?” asked an official from an international consultancy.