Asian Hotels firms up expansion plans - Views on News from Equitymaster

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Asian Hotels firms up expansion plans

Feb 11, 2000

Asian Hotels Ltd (AHL) plans to set up two new five star hotels in Mumbai (450 rooms) and Calcutta (250 rooms) at an estimated cost of Rs 4.6 bn. These hotels would be operated by Hyatt International and the promoters plan to put in Rs 1.8 bn in these two projects as their contribution. Asian Hotels Ltd owns and operates the five star deluxe 518 room Hyatt Regency hotel in New Delhi. It reported a turnover of Rs 1.4 bn in FY99.

The rest of the project would be financed by debt to the tune of Rs 2.8 bn and the hotels are expected to be ready by 2001. Like AHL's existing hotel property, the Hyatt Regency Delhi, these two hotels will be managed by Hyatt International. However Hyatt International will not take a equity stake in these projects.

Though occupancy rates in metro cities like Mumbai and Calcutta are yet to pick up, analysts expect them to start improving over the next one year with the improvement in the economic scenario and stable political condition. If AHL manages to start these hotels by next year it would be one of the first few hotel companies to open new hotels and this could be to its advantage if occupancy rates were to pick up by then. However as AHL has been a zero debt company in the past this would pressure on its margins as interest costs would soar when the hotels' start operations.

Market View:
Hotel Stocks have been out of favour with analysts due to fall in occupancy rates and pressure on average room rates in the five star city hotels and Asian Hotels is no exception to this. Many analysts have a "Sell" on it.

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