 "Oberoi New Delhi renovation to cost EIH Rs 500 cr")
The renovation of the hotel opened in 1965 would cost the company around Rs 500 crore. It will be funded by internal accruals and borrowings. There will be significant revenue loss on account of the closure.
In 2015-16, revenues from Oberoi, New Delhi, were around Rs 190 crore and profits at Rs 62 crore. Yet, the hard decision to close down and renovate the property had to be taken.
“At one point, the property gave us profits of around Rs 95 crore. That was around 10 years back. But, it kept coming down. Last year, it was Rs 62 crore. This year, we expected it to be lesser and next year would have been even less because of new hotels coming up every day,” EIH Executive Vice-Chairman, S S Mukherji, explained on the sidelines of the company’s annual general meeting.
The property was outdated, customers were demanding more facilities. So, to make it competitive in the market, we had to close it down for renovations and refurbishments, elaborated Executive Chairman P R S Oberoi.
The temporary closure was effective April 1, 2016. It is expected to open exactly two years later, that’s April 2018. To make it happen, around 1,000 people are working on the project round the clock.
“Anything that ages needs attention. The Oberoi, New Delhi, is 52 years-old. We are just giving it attention,” said Managing Director and Chief Executive Officer, Vikram Oberoi.
Assets which have been written off impacted EIH’s profitability by Rs 18.35 crore in the first quarter. An additional write-off to the same tune is expected in the second quarter of the financial year.
On account of Trident Hyderabad too, the company had to make a provision of Rs 41 crore for its 16 per cent stake.
“Owned by Golden Jubilee Hotels, it has a large amount of debt which they have not been able to service as a result of which a consortium of banks has pronounced it as a non-performing asset. As a cautious step, we have provided for it,” Vikram Oberoi explained.
EIH has a management contract with Golden Jubilee Hotels for another project, Oberoi Grand in Hyderabad. But, the fate of that project is not clear. However, a number of properties managed by EIH are at various stages of construction.
The Oberoi, Al Zorah located in the United Arab Emirates is in its final phase of construction. The ocean front site is part of a prestigious real estate venture incorporating a luxury residential and retail development and an 18-hole Jack Nicklaus-designed golf course, P R S Oberoi told shareholders.
The Oberoi, Marrakech, in which EIH has a 16 per cent stake, is scheduled to open in the last quarter of 2016. The Oberoi Sukhvilas will open in October 2016. The Oberoi, Doha is expected to open in the first quarter of 2019 and the luxury service apartments in Lusail, Qatar, is scheduled for completion in the last quarter of 2018. The Oberoi Gir, a luxury jungle resort, will open in the last quarter of 2019.
EIH has been moving towards the managed-property model for while now. In terms of number of rooms, 50 per cent in India would be under the managed model while the figure would increase to 85-90 per cent on completion of the current set of projects.