ADVERTISEMENT

How Much Would Losing Taj Mansingh Hurt Indian Hotels?

Indian Hotels revenue to not see a significant impact if they lose the e-auction for Taj Mansingh

The Taj Mansingh Hotel, New Delhi. (Source: Taj Mahal Hotel website)
The Taj Mansingh Hotel, New Delhi. (Source: Taj Mahal Hotel website)

Indian Hotels Company Ltd.’s failure to win the renewal of Taj Mansingh Hotel’s lease without an auction in New Delhi has not altered analysts’ view on the stock, at least for now.

Four brokerages that actively track the stock have maintained their rating, according to Bloomberg. The company’s shares are trading below the target price.

Elara Capital, among the four brokerages, estimates 2.5-3 percent contribution from the property to Indian Hotels’ consolidated operating income, which stood at Rs 616.58 crore in the year ended March 2016.

The Supreme Court last week allowed the New Delhi Municipal Council (NDMC) to go ahead with the auction even as the company argued that putting the property on the block will artificially inflate the price.

How Much Would Losing Taj Mansingh Hurt Indian Hotels?

“We respect the decision of the Supreme Court and intend to participate in the e-auction when it is held,” the company said in an emailed reply to queries by BloombergQuint.

The property contributes around Rs 145-150 crore to Indian Hotels’ revenue and Rs 30 crore to operating income, said Anuja Barve, an analyst at Elara Capital. At an occupancy rate of 68-70 percent and an average room rate of more than Rs 14,000 a day, the room revenue of the hotel is expected to be nearly Rs 100 crore a year, said Barve. The brokerage pegs Taj Mansingh’s food and beverage revenue at approximately Rs 50 crore a year.

The hotel chain’s standalone revenue stood at Rs 2,382 crore in 2015-16, while the group’s occupancy rate was 66 percent, according to its annual report.

Other brokerages tracking the stock refused to comment.

Rating agency ICRA in its October 2016 report had said that any uncertainty on the extension of licence could negatively impact the financial profile of the company. The company has a high revenue and profit concentration on luxury properties in Mumbai and New Delhi, it said. ICRA told BloombergQuint that there is no change in its estimates.

Indian Hotels had the licence to run the property from 1976 till November 2011, and then received an extension for a period of one year where it had to pay a license fee at 17.25 percent of the gross turnover of the hotel or Rs 21 crore, whichever was higher.

In 2011, after two rounds of negotiations, Indian Hotels and the NMDC decided to extend the licence by another 30 years on a revised licence fee schedule.

The yearly licence fee decided was:

  • 17.25 percent of the gross turnover of the hotel for the first 10 years with a minimum guaranteed amount of Rs 21 crore.
  • 18.25 percent of the gross turnover for the next 10 years with a guaranteed amount of Rs 25 crore.
  • 19.25 percent of the gross turnover for the final 10 years with a guaranteed amount of Rs 30 crore.

A report recommending the extension of the lease on these revised terms was submitted by the committee to NDMC, but the Union Ministry of Urban Development advised the civic body to invite open bids.