ITDC disinvestment strikes again - Views on News from Equitymaster

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ITDC disinvestment strikes again

Mar 10, 2000

Many hotel chains are keen on ITDC's (India Tourism Development Corporation) disinvestment of its properties. ITDC has prime properties in cities across India. However these hotel chains are keen only on 10 of the upmarket hotel properties of ITDC's total 26 properties. The ten hotels include ITDC's properties in Delhi, Calcutta, Mysore, Udaipur and Thiruvananthapuram. As the five star segment is more lucrative the hotel chains like ITC Hotels, Accor, Taj group, Oberoi group and Bass have shown interest in this segment. They are not interested in the budget and economy hotels of ITDC. As a ballpark figure it takes around 10 hotels in the budget segment to be as profitable as a single five star city hotel.

This disinvestment has been in the news for the last four to five years. However as things stand it has not taken off as yet. ITDC's hotels are attractive because of their size and prime locations. However these hotels need to be renovated to bring them upto international standards as they currently do not command a significant market share in the hotel industry. Another reason of their poor performance is that they are badly managed.

However if the government does not do something soon to disinvest its stake in these properties, it may be too late. Given the current slowdown in the hotel industry and future supply scenario of the industry it may well be that ITDC's properties may not fetch the price that they expect too.

Even though in the medium term the prospects of the five star hotel industry look bright as the economy is showing signs of a pick up and the political situation looks stable. However in the long term room supply is going to rapidly increase in cities like Mumbai, Delhi, Calcutta, Chennai.

As the existing hotel chains are going on with their own expansion plans and also foreign hotel brands are entering into India the oversupply scenario is only going to worsen in future. Hence at that point of time there may not be any takers for ITDC's properties as it will be too late.

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