Indian Hotels: Set to sell off idle assets - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Indian Hotels: Set to sell off idle assets

Feb 20, 2001

Indian Hotels Company Ltd (IHCL), India's largest hotel chain continues to reap the benefits of seeds it sowed many years ago. The company's foresight of increasing its presence in metro cities as well as leisure destinations is paying off now. The company is the first among the larger hotel chains to enter leisure as well as business hotel segment in secondary cities due to its anticipation of demand picking up in these cities. Besides IHCL invested in land in North and South Mumbai around 20 years ago, due to its foresight and will enjoy the benefits of this in the next few years.

Though IHCL was earlier keen on opening a hotel in North Mumbai, the company has dropped plans of this currently due to the oversupply anticipated in this region in the next four to five years. Instead the company has decided to sell of its land banks in North Mumbai so as to invest in other lucrative options. The gains from the sale of these properties is likely to boost the company's cash flows and help the company pump in funds for future expansions domestically and internationally.

In 3QFY01, IHCL's other income went up primarily due to sale of its idle assets. This asset is a piece of land at Andheri, Mumbai. The company realised Rs 46.7 m from sale of this asset.

The company is still sitting on a 17 acre plot in Sahar, Mumbai near the international airport. The company had purchased this property around 20 years back for a paltry sum of Rs 10 m. The company is expecting to clock in gains in the range of Rs 400 - Rs 700 m from part sale of its land in North Mumbai in the next few quarters.

It is in a position to hold a part of this property if it wishes to build a hotel here at a later stage. However, the company is in a win - win situation as compared to other hotel chains which have had to purchase land at current market prices resulting in higher capital costs per room. Hence, these companies would take much longer to break even on their properties in comparison to IHCL, if it decided to build a hotel here.

As many hotel chains are in the process of setting up shop in northern Mumbai IHCL does not feel the need to have its presence in this part of the city immediately. It will continue to concentrate on its forte, the South Mumbai hotel market. To this effect the company has recently completed renovation of restaurants and public areas at its hotel, Taj Mahal, Mumbai.

IHCL's strategy of foreseeing into the future has always paid off. Though earlier the company purchased this land on the premise that it would build a hotel in North Mumbai, it was very correct in forecasting future demand in this part of the city and hence bought the land 20 years ago. The company will gain from capital appreciation, while its competitors will reel under the pressure of high interest and depreciation costs, the key costs for determining profitability for a newly set up hotel.

IHCL has run up 36% in the past six months due to higher occupancy rates and an improvement in its ARRs in 3QFY01. On the current price of Rs 317, IHCL is trading at a 41% discount to its net asset value per share of Rs 541. It is trading at a price to earnings multiple of 12.0x FY01E EPS of Rs 26.4.

Due to high interest and depreciation costs and major renovations at its metro city hotels, the company’s profit growth has been low in the current financial year. However the market has started to realize that in future its strategy of expansion and renovations will boost its profitability further. In light of the above IHCL will continue to be a gainer among old economy stocks.

Equitymaster requests your view! Post a comment on "Indian Hotels: Set to sell off idle assets". Click here!


More Views on News

Indian Hotels Q4 Review: Reports Net Loss, Revenue from Operations Decline (Views On News)

May 3, 2021

Key takeaways from Indian Hotels Q4FY21 results.

THE INDIAN HOTELS 2019-20 Annual Report Analysis (Annual Result Update)

Dec 1, 2020 | Updated on Dec 1, 2020

Here's an analysis of the annual report of THE INDIAN HOTELS for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of THE INDIAN HOTELS. Also includes updates on the valuation of THE INDIAN HOTELS.

Why Did Shares of Jubilant FoodWorks Rally Today? (Views On News)

Jun 16, 2021

The company sees a 90% recovery despite minimal dine-ins.

Why Did Burger King India Shares Plunge 7% Yesterday? (Views On News)

May 28, 2021

Key takeaways from Burger King India Q4FY21 results.

THE INDIAN HOTELS Announces Quarterly Results (4QFY20); Net Profit Down 42.9% (Quarterly Result Update)

Jun 11, 2020 | Updated on Jun 11, 2020

For the quarter ended March 2020, THE INDIAN HOTELS has posted a net profit of Rs 668 m (down 42.9% YoY). Sales on the other hand came in at Rs 11 bn (down 14.6% YoY). Read on for a complete analysis of THE INDIAN HOTELS's quarterly results.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 17, 2021 (Close)


  • Track your investment in INDIAN HOTELS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks