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ITDC disinvestment - a question mark

Mar 13, 2000

India Tourism Development Corporation's (ITDC's) disinvestment continues to be in the news again. However alot of uncertainties are governing this. The government is still not sure by how much it wants to disinvest its stake in ITDC and by what method it plans to reduce its holding. The government is still not sure by how much it will disinvest its stake in ITDC. There are two views on whether the governments holding should be brought down to 26% or nil. On the method of disinvestment ITDC had earlier planned sale of individual properties but as this would result in high stamp duty there are reconsidering this view. There is a view now that the individual hotels be demerged into separate subsidiaries and the government then disinvest its stake in these subsidiaries. This however is a more time consuming process.

These uncertainties are sure to delay the disinvestment of ITDC. From the private hotel companies who would want to takeover ITDC's hotels like Indian Hotels Ltd, EIH Ltd, ITC Hotels Ltd etc one thing is sure that they are not interested in the aggregate properties of ITDC. However they are interested in the prime individual hotel properties located in Delhi, Calcutta, Mysore, Udaipur and Thiruvananthapuram. The reason being these hotel companies primarily operate in the five star segment catering to business travellers and the high end of the tourist market.

ITDC's hotels are attractive because of their huge size and prime locations. However they are badly managed, have unfocussed marketing strategies and are currently making losses. ITDC is expected to report a loss of Rs 80 m in FY2000.

If the government does not take serious steps to disinvest its stake in these properties, it may never happen. 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 a suitable price.

Though prospects for the five star hotel industry are likely to improve in future as the economy has picked 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 and Chennai. The oversupply scenario in the metro cities is likely to only worsen in future. Hence at that point of time there may not be any interest towards ITDC's properties.

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