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Indian Hotels: Going global - Views on News from Equitymaster
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  • Dec 26, 2000

    Indian Hotels: Going global

    India's largest hotel chain, Indian Hotels Company Ltd (IHCL) is firming up its global expansion plans. Expanding its room base and renovation of existing hotels properties seems top on IHCL's agenda these days. The company is getting ready to meet the future domestic competition and has plans of going global as it wants to spread its eggs in more than one basket.

    For its expansion plans in the Asia region the company is in the process of finalising its plans to set up a subsidiary by the name of Taj Asia. This company is likely to be a joint venture along with a strategic investor. IHCL is likely to divest 50% stake in this company to a strategic partner. They also plan to merge the operations of Taj SriLanka and Taj Maldives into Taj Asia. These companies operate separately currently.

    The company is also trying to purchase the Carlysle Hotel in New York and if this deals goes through the company would have to cough up around US$ 70 m as the rest (US$ 70 m) would be met via raising of debt. Besides IHCL is also on the look out for properties in Los Angeles and Chicago so as to increase their presence.

    On the domestic front the company is in the process of acquiring the 104 room Radisson Hotel in Chennai. It makes sense to buy an existing property as it saves the company the gestation period of 4 years before a hotel in India can actually start operations. This is being done through its affiliate company in the South, Oriental Hotels Ltd.

    IHCL is also planning a foray into the budget hotels segment. Currently the company operates in three areas in India. These are the luxury hotels segment, first class business hotels and the leisure hotels segment. The company plans to firm up its branding strategy for the budget segment by 2001-2002.The company plans to fund all its future capital expenditure plans via a mix of debt and equity.

    The company is also in a very good position to receive some bounty from ITDC's forthcoming disinvestment. It has been in the news recently as it has a 10% stake in ITDC and hence is likely to benefit more than others who are vying for ITDC's prime hotel properties.

    IHCL's strategy of going global will benefit its domestic operations by strengthening its brand image and opening up of higher marketing avenues.

    Luxury hotels occupancies up
    Occupancy rates (%) 1QFY01 1QFY00 2QFY01 2QFY00
    Taj Luxury Hotels 57.0% 49.0% 57.0% 54.0%
    Taj Leisure Hotels 37.0% 48.0% 38.0% 38.0%
    Taj Business Hotels 52.0% 59.0% 53.0% 63.0%

    In the current year IHCL has benefited from higher occupancy rates in metro city hotels as they get respectively 65% of its profits from their Mumbai and Delhi hotels. The markets look forward to strong 3Q results as room tariffs were revised up in October 2000 by IHCL for their metro hotels. This is the first time in four years, that hotel companies were able to revise their tariffs upwards.

    Luxury hotels ARRs looking up in 2Q
    ARR (Rs) 1QFY01 1QFY00 % change 2QFY01 2QFY00 % change
    Taj Luxury Hotels 5,612 6,199 -9.0% 5443 5301 3.0%
    Taj Leisure Hotels 2,030 1,841 10.0% 1703 1750 -3.0%
    Taj Business Hotels 2,840 2,500 14.0% 2808 2494 13.0%

    On valuations IHCL looks attractive. At the current price of Rs 225 it is trading at a 58% discount to its net asset value per share of Rs 541. On an EV/EBIDTA basis IHCL is trading at 6.2x FY02E. On a price to earnings multiple it is trading at 7.2x FY02E EPS of Rs 31.1.



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    Indian Hotels has reported a 13.2% YoY increase in the standalone topline and a standalone net profit of Rs 1.2 m for the quarter ended September 2015.

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