Close on the heels of announcing a Rs 8 bn investment plan to set up hotels in smaller cities, the Taj Group-part of the Indian Hotels (IHCL) chain, is looking at select properties of Air India's subsidiary Hotel Corporation of India's (HCI), which has been put up for divestment.
This was revealed by Managing Director of Indian Hotels Mr. R. K. Krishna Kumar. He however clarified that IHCL is not interested in taking over HCI as a whole but is looking at only select properties. HCI has two properties in Bombay, Juhu Centaur and Centaur Hotel at the airport, which could be of interest to the Taj Group. There are at least 4 new hotels, which are coming up near the Bombay airport. IHCL does not have any property near the airport or in the western suburbs of the city to compete with them, and hence the interest in HCI's Bombay properties.
Corporate activities have been shifting from South Bombay to new commercial complexes in the suburbs, much away from IHCL's properties in South Bombay. If the group succeeds in acquiring these two properties from HCI, the benefit will be two folds. IHCL will save on huge costs of building properties in the western suburbs. Moreover, in Bombay, it is difficult to find appropriate sites for building and even if sites are available, the cost of acquisition is sky high, rendering the whole project unviable. Also by this move, IHCL will be able to counter new entrants in the arena, who will be looking to wean away customers.
IHCL's other properties in Bombay, have been acquired on a low cost leases from state governments. The expiry of these leases and future charges will remain a source of worry for the company. The lease on The Taj, Bombay, for example, expires in FY2001. Uncertainties exist over what the future lease charges will be.
Some analysts have rated the stock as a 'BUY' even though occupancy levels have fallen in the first four months of FY2000. With the economy slowly picking up, analysts are predicting an improvement in tourist and business travellers and hence occupancy levels. The IHCL management's committed restructuring moves are also influencing their ratings. In the recent rally, the IHCL stock has moved up by 40-45% from Rs 280 levels to the current Rs 400 plus levels.
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