ITDC disinvestment: Any takers? - Views on News from Equitymaster

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ITDC disinvestment: Any takers?

Nov 23, 2000

Loss making public sector hotel company, India Tourism Development Corporation (ITDC) is once again serious about its disinvestment plans. ITDC has 26 hotel properties across the country and as of now plans to disinvest all of these. Its plans to do this via two methods: outright sale or long term lease basis. Most of the privately run hotel chains, however, are keen on only 10 of its hotel properties, due to their prime locations. The ten hotels are ITDC's properties in Delhi, Calcutta, Mysore, Udaipur and Thiruvananthapuram. Of these, the 5 prime ones are located in the city of Delhi itself.

It is important to see whether the privately run hotel companies like Indian Hotels Company Ltd (IHCL), EIH Ltd, ITC Hotels etc would benefit to a large extent by taking on these properties. Considering that these chains already have a presence in Delhi, and room capacity is on the rise here, it seems unlikely that these hotel chains would be very interested in the current scenario. The government has been dragging its feet on ITDC's disinvestments for the last five to six years, hence the whole thing has got delayed.

In Mumbai, close to 100% capacity additions are planned over the next 5 years. In Mumbai, the capacity is likely to go up by 2,944 rooms and the number of rooms will increase to 6,199 rooms from the current level of 3,255 rooms. In Delhi, the capacity is likely to increase by 1,370 rooms in the next 4-5 years a growth of 35%-40% from the current 3,960 rooms.

Bombay to face an explosion in room capacity
Existing capacity Rooms New expansions Rooms Scheduled
Taj Mahal 583 Taj, Wellington Mews 250 2003-2004
Taj President 310 Intercontinental 400 2002
Oberoi 337 Regent expansion 400 NA
Oberoi Towers 575 Marriott 400 2001
Orchid 245 Rennaisance 450 2001
Leela Kempinski 423 Marriott Executive Residence 250 2000
Ambassador 123 Sheraton Hotel 394 2002
Holiday Inn 191 Hyatt 400 2002
Regent 100
Marine Plaza 68
Le Meridien 300
Total 3,255 Total 2,944

Also, considering that the hotel industry has just come out of a slump recently, why would the large hotel chains block their investments in loss making hotels of ITDC. Keeping in mind that these hotels are overstaffed and inefficient it will not be an easy task turning them around. The Corporation has close to 8,000 employees, and has announced its decision to offer a voluntary retirement scheme. Details of the same are yet to be finalised.

ITDC's staff costs currently account for around 50% of total revenues as compared to 15%-20% of revenues for private hotel chains. Hence, this Herculean task of reducing its staff strength will be a key determinant in the success of its disinvestment plan.

As the existing hotel chains are going on with their own expansion plans and also foreign hotel brands are entering into India the oversupply scenario in metro cities is only going to become worse in the future. Hence at this point in time there may not be any takers for ITDC's hotels. The phrase "Better late than never" may not work here.

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