The Indian Hotels Company Ltd (IHCL) is close to clinching a deal for a six star upmarket hotel in downtown New York. The value of this hotel is estimated to be around US$ 143 m or Rs 6.6 bn. It would be interesting to note that IHCL's earlier presence in the US market wasn't very successful.
However lets try and see, what's different in IHCL's investment this time around. For one the company is looking towards owning a property in the upmarket premium hotel segment of New York, as against its earlier four star property, the Lexington Plaza. Hence the company is planning to move up the value chain. The premium hotel segment in New York is currently doing very well and hotels command a room tariff of US$ 300-400 per night on the lower side. IHCL is looking towards the higher value segment in keeping with its world wide luxury hotel image.
In terms of investment the company plans to invest in this property through a US based subsidiary in which the company would have a majority stake, with other strategic partners holding the balance. A direct acquisition has said to be ruled out by the company due to its already high interest burden.
Occupancy rates (%)
Taj Luxury Hotels
Taj Leisure Hotels
Taj Business Hotels
This would be looked upon in much better light by the stockmarkets as some of the company's investment needs would be shared. Earlier IHCL had the entire burden on its books as it had invested in the Chicago and New York hotels via its 100% subsidiary based in HongKong and had taken on a majority proportion of the debt. IHCL's GDR issue in 1995 was done mainly to finance this debt on its books. This was not viewed lightly by the market as the international operations were not doing well at that point in time. Hence the parent IHCL had to continuously pump in funds to keep it going.
However this time round the company does not want to make the same mistakes it did earlier. Also it is targeting a brand which is more in synergy with its brand profile worldwide.
Keeping in mind that occupancy rates in metro cities are up, IHCL's current valuations are attractive. On the current price of Rs 190, IHCL is trading at 7.6x FY00 EPS of Rs 25.1
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