 "Taj, Leela sell assets to get lighter")
A near-total equity exit from the Bermuda-based Belmond (formerly Orient Express Hotels) and monetisation of a 90-year-old property in Boston has earned IHCL Rs 1,250 crore, about 12 times its profit before tax of Rs 102 crore last year.
The proceeds, received in the past two months, will help IHCL bring down the finance costs that had consistently burnt a hole in its margins. Investors gave the move a thumbs-up, with the stock rising nearly 12 per cent since the start of June to close at Rs 132.85 this Friday, just short of its 52-week high of Rs 143. The Mumbai-based company has failed to generate profits at a consolidated level in any year since 2011-12. This and heightened competition from foreign entities such as Marriott, Starwood and Accor, has put hotel companies like IHCL under pressure.
More From This Section
"Indian Hotels' exit from its loss-making US investments, even at a loss, will be taken positively by the market. The Pierre, NY, remains a key drag on the financials and a roadmap on either break-even or exit is awaited," went a report from JPMorgan. IHCL is looking to further lighten its burden and the route it has taken is of management contracts. Of the eight properties it opened last year, four were through this route. An equal number of properties under the same route will be opened this year of the 10 scheduled.
Not far behind is Hotel Leelaventure, controlled by the Mumbai-based Nair family. The luxury chain of hotels and resorts, operating under the Leela brand, sold its second property, at Goa, for Rs 725 crore last year. The sale came under four years of selling its first hotel at Kovalam for Rs 500 crore.
From a total of seven properties, Leela's ownership was five by the end of 2015-16. It is open to selling more to reduce debt, including the property at Chennai which began operating only in 2013.
As of the end of FY16, Leela's debt is estimated to have been Rs 4,500 crore, primary reason behind its consistent losses. Like IHCL, Hotel Leelaventure hasn't realised profits since 2011-12. "The company is presently adopting an asset-light strategy. More hotels are being taken on management," Leelaventure said recently. It has also started to monetise land in Hyderabad's prime Banjara Hills area, which could fetch the loss-making company around Rs 150 crore. Last month, it signed an agreement with Qatar's Al Faisal Group to sell a 6.5-acre lot.
It has also commenced work on developing high-end residences next to the Leela Palace, Bengaluru, where apartments are presently being sold. The company entered into a joint development agreement with Prestige Developers for the project.
Leela has expanded its managed offering to four (Goa, Kovalam, Gurgaon and Delhi), which has almost the same inventory (1,280 rooms) as its owned properties (1,408 rooms).
Global hotel companies are leaving no stones unturned to expand operations in India. "The priority on my list of to-do things is to get into management contracts. Our operations in India are franchise-based at the moment. We will make an announcement by end of the year," said Deepika Arora, regional vice-president, Eurasia, Wyndham Hotel Group.