Indian Hotels makes Rs 500-cr impairment provisioning

An overall investment of over Rs 1,000 cr was made in buying shares of Orient-Express Hotels

Indian Hotels Company (IHC), the country’s largest chain in the segment, will make a Rs 500-crore impairment provisioning on its investments, even as it continues to feel the heat of depressed market conditions.

The Mumbai-based Tata Group firm on Tuesday said it expected non-cash provision for impairment in respect of financial exposure in its global and domestic investments.

This provision will be over and above the Rs 678 crore already written off on investment in Orient-Express Hotels, the Bermuda-based luxury chain it tried to fully acquire (it aborted the plan later).

The company had made an overall investment of about Rs 1,000 crore in buying shares of Orient-Express Hotels, which did not offer any management control. IHC had become the third-largest OEH shareholder before its holding shrank to the current seven per cent.

“The company has undertaken its year-end review to evaluate the need for any other than temporary diminution in the value of its long-term investments and the impact thereof. This review was undertaken taking into account the external and domestic economic environment and the anticipated future performance of the investee companies,” the company said in a statement.

A provision of Rs 400 crore is made in the standalone statement of profit and loss and a provision of around Rs 100 crore in the consolidated profit-and-loss statement. This is IHC’s second impairment provision in less than six months.

Earlier, the company had made a provision of Rs 287 crore, arising mainly on account of erosion in value of its OEH investment, which led IHC to report a Rs 300-crore loss in the September quarter. Further, the company has warned of reduced cash flows from affected investments in the medium and near term, due to uncertain economic conditions. With occupancy and average room rates expected to come under pressure in coming months, besides increased competition from domestic and foreign brands, IHC is gearing up for a challenging period.

“The impairment is primarily due to a sustained depression in the macroeconomic and market environment globally, as also in the domestic market, and the adverse effect thereof on some of the investments,” the company’s statement added.

Reducing the consolidated debt burden of around Rs 3,500 crore is one of the company’s important steps. IHC, which runs hotels under the Taj, Vivanta, Gateway and Ginger brands, reported a 20 per cent rise in consolidated net profit in the quarter ended December 31, to Rs 59.57 crore, compared with the same period the previous year. IHC is not the only Tata group company that has seen its investments going sour. Earlier this financial year, Tata Steel, India’s oldest steel company, announced a $1.6-billion goodwill impairment charge for the loss in value of Tata Steel Europe (formerly Corus).

Tata Motors was forced to write off its Rs 700-crore investment in Spanish bus maker Hispano Carrocera. The company subsequently shut the troubled operations and is now “evaluating options”. Tata Chemicals, too, wrote off Rs 484-crore investments in its European operations.

TOUGH TIMES
Write-offs by Tata group firms in 2013-14

TATA STEEL
Rs 8,700 cr (Corus)

INDIAN HOTELS
Rs 1,178 cr (Orient Express & others)

TATA MOTORS
Rs 700 cr (Hispano Carrocera)

TATA CHEMICALS
Rs 484  cr  (European operations)

Total: Rs 11,062 cr

Source: Companies
In brackets: Investments