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Indian Hotels: Upbeat on business hotels

Sep 8, 2000

Indian Hotels Company Ltd's (IHCL) future focus would continue to be on business hotels in secondary cities. As many of these cities are expanding very fast, the potential of business travel has picked up. Hence to cash in on the growth in this segment the company has acquired hotels in Poona and Hyderabad. The following are the main points of our meeting with the Indian Hotels management yesterday:

  • The company as of now does not have any plans of opening up more luxury hotels. The thrust for this segment, which is currently the mainstay of the company is on 'renovations'. The Taj Mahal in Mumbai, the Taj Mahal in Delhi and the Taj Bengal in Calcutta are undergoing renovation. This renovation exercise is going to cost the company Rs 400m per annum.

  • The company is keen to use its property at 'Wellington Mews" in South Mumbai to open a hotel. The company has envisaged a 150 key service apartment hotel at a cost of Rs 1.2 bn. It is likely that this hotel would open in the next five years. On its North Mumbai landbank the company at this stage is not keen to open a hotel. This is mainly due to the high number of room capacity expansions planned by other hotel chains here. This seems sensible as North Mumbai hotels are going to face a tough period over the next 5-6 years.

  • In the current year the company expects employee costs to go down as it has implemented a VRS scheme. The company plans to reduce their workforce by around 1,000 employees. This should help improve margins in the current year.

  • The company will be opening a hotel in Dubai in the early part of 2001. This property will be run on a franchise and management basis.

  • The company's flight catering business continues to do well. It contributes to around 12% of the company's revenues and 15%-20% in terms of profits. Margins have increased due to low competition in the flight catering market. The company has started its foray into institutional catering by supplying around 2,000 meals per day to a Delhi based company.

  • In the current year the company plans to dispose off some parts of its surplus land. They are expecting to get cash to the tune of around Rs 400m to Rs 700m. This announcement is expected in the third or fourth quarter of the current financial year. This would lead to short term increase in profits.

Occupancy rates (%) ARR (Rs)
1QFY01 1QFY00 1QFY01 1QFY00
Taj Luxury Hotels 57.0% 49.0% 5,612 6,199
Taj Leisure Hotels 37.0% 48.0% 2,030 1,841
Taj Business Hotels 52.0% 59.0% 2,840 2,500

The prospects in the current year for metro city hotels continues to be bright as occupancy rates have picked up. Hotels stocks have come back into the limelight again. On the current price of Rs 234, IHCL Ltd is trading at 9.3x (on FY00 earnings). This is low as compared to multiples of 25x-30x it traded at few years ago.

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