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ITC Hotels in investment overdrive - Views on News from Equitymaster
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  • Sep 25, 1999

    ITC Hotels in investment overdrive

    According to newspaper reports, ITC Hotels plans to add 1500 new deluxe rooms at an investment of Rs 15 bn in the next five years.

    ITC Hotels (Welcomgroup) is a 70% subsidiary of cigarettes and tobacco major ITC Limited. It currently operates a 32-property hotel chain with over 1,500 rooms. Its main revenue earning hotels are the 240 room hotel in Bangalore and the 140 room hotel in Chennai. The company has also floated two subsidiaries - Srinivasa Resorts and Fortune Park Hotels to cater to the budget traveller.

    In the next five years, ITC Hotels plans to add six new hotels to its existing properties. The new hotels will be set-up in the four metro cities while one property will be based in Bangalore. Of the total investment envisaged Rs 3 bn will be pumped in the current fiscal by its parent ITC Limited. Around Rs 4.5 bn will be utilised for the company's up coming 400 room 5-star hotel at Sahar International Airport at Bombay, which is slated to be completed by October 2000. Construction will also begin soon on another hotel in Bombay and a 5-star hotel in Calcutta. ITC has already acquired the land for these two hotels and has earmarked Rs 2.2 bn for investment in these two projects.

    In Delhi, ITC has acquired a 37.5% stake in a joint venture with construction group Ansals for a 220-room hotel in Delhi. The ITC Hotels chain is also scouting for a hotel property each in Chennai and Bangalore. The group plans to set up 5-star hotels at these locations.

    With the company in such massive investment overdrive, it seems to be optimistic on the growth prospects of the hotel industry in India. Most of the other hotel majors like Indian Hotels, The Leela Group, EIH are planning similar investments. With the economy looking up, these companies are refurbishing their capacities and focusing on ancillary activities like restaurants, shopping malls etc. to beef up their bottom lines.

    For ITC though, there is one more reason for this investment. The holding company's main revenue source is cigarettes and tobacco, which globally is coming under attack. It is also adversely affected by punitive duties imposed on it by the government. In such a scenario, it is only natural for the company to look for other revenue streams like Hotels and Paperboards, both of which it has identified as its core businesses.



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