Bankers value Taj Mansingh at Rs 1,000 crore

But bids for the luxury property may go up to Rs 3,000 cr, say experts

Marquee names in the investor community and hospitality industry, both within India and overseas, are busy doing their math this summer on what’s the best price for the Taj Mahal hotel, popularly known as Taj Mansingh, in Lutyens' Delhi. Business Standard spoke to top investment bankers and consultants to get a likely price tag for the luxury hotel, which is going under the hammer very soon.    

      

Most bankers gave the value for which the hotel, located at 1, Mansingh Road in the capital, could be auctioned at Rs 3 crore to Rs 4 crore a room—usually returns on a per room basis determine a logical valuation of a hotel. Going by this assumption, Taj Mansingh, a 294-room property spread over 3.78 acres could go to another business group or the Indian Hotels Company of the Tatas, current owners of Taj Mansingh, for anything between Rs 882 crore and Rs 1176 crore.

One of the bankers gave a more specific figure. ‘’My estimate is Mansingh will fetch a bid of Rs 3.5 crore per room,’’ he said. That would mean a valuation of Rs 1029 crore for the property.

But, there are also estimates which go beyond normal rules of the game in the hospitality business. A well-known banker known for astute deal-making told Business Standard that the bids could go as high as Rs 2500 crore to Rs 3000 crore for Taj Mansingh hotel, which has had an interesting past from the time JED Fonseca was running a 23-room hotel under the name Fonseca Pvt Ltd to the critical role of Ajit Kerkar, then chief of Tatas’ hospitality business, in getting to build a Taj property in Lutyens' Delhi with Sanjay Gandhi’s help.

Bidders could be of three types--hoteliers, high networth individuals and international investors backed by private equity firms, according to industry insiders.

Since the terms and conditions of the upcoming auction are not known yet, numbers are being crunched around several assumptions. For instance, a prominent advisor in the hospitality industry said, the bid would be for a long lease with an upfront deposit, that could be as high as Rs 400 crore to 500 crore. In addition, there could be a revenue-share, as high as 30 to 35 per cent of the top line, payable by the winning brand to New Delhi Municipal Council (NDMC), which owns the land over which Taj Mansingh stands. NDMC had earlier leased the property to Taj for 33 years, after which several extensions were given to Indian Hotels Company.      

The possibility of Indian Hotels getting into a deal with an investor or a developer for management contract is also not being ruled out. Internationally, most big hotel chains operate under management contract arrangement.  

Sanjay Dutt, chief executive officer of India operations and private funds, Ascendas Singbridge, said, "In today’s world, hospitality is a very competitive business. Taj Mansingh is an iconic property and a landmark in Delhi. And there may be some buyers who would want to bid for the hotel at a fancy value.’’ However, any value over Rs 3 crore to 4 crore a room would be very difficult to get a return from, he said. But Dutt added that there could be some interested in acquiring a luxury property and paying a premium for it.

Another consultant said it’s a  leasehold property, as against a freehold, and therefore business model has to be sustainable for a certain number of years.    

For the Tata group, the Taj auction is likely under a new CEO of Indian Hotels. Last week, Rakesh Sarna resigned as the CEO of IHC. NDMC has appointed SBI Caps for conducting the auction, the date for which has not been fixed yet.