In­dian Ho­tels re­tains its ‘Taj’

Out­bids ITC to win the lease for the iconic ho­tel for an­other 33 years

Business Standard - - FRONT PAGE - AJAY MODI

Tata group’s In­dian Ho­tels Com­pany (IHCL) will re­tain con­trol of the Taj Ma­hal ho­tel, pop­u­larly known as Taj Mans­ingh, for an­other 33 years.

IHCL, which op­er­ates a chain of lux­ury ho­tels un­der the Taj brand, emerged win­ner in an e-auc­tion con­ducted by the New Delhi Mu­nic­i­pal Coun­cil (NDMC) on Fri­day. The com­pany out­bid ITC, the only other bid­der in the auc­tion, for the prime prop­erty lo­cated on Mans­ingh Road in the cap­i­tal.

Though the re­sult of the auc­tion was de­clared af­ter the mar­ket hours, the stock price of IHCL seems to have fac­tored in the win. The price surged more than 7 per cent in in­tra-day trade on the BSE and closed at ~135.45, up more than 5 per cent. Shares of other listed ho­tel com­pa­nies like EIH and Lemon Tree ended in the red.

IHCL has agreed to pay a li­cence fee of ~70.3 mil­lion per month, or 32.5 per cent of the ho­tel’s gross rev­enue, to the civic body. Un­til now, IHCL was pay­ing just ~39.4 mil­lion ev­ery month. The ho­tel is one of the key as­sets of IHCL and it brought rev­enues of ~2.2 bil­lion in the fi­nan­cial year 2016-17.

The de­ci­sion will al­low IHCL to make in­vest­ments to re­fur­bish the 40-year-old ho­tel. Lack of clar­ity on the fu­ture of this ho­tel had pre­vented ma­jor in­vest­ments. Puneet Ch­hat­wal, MD & CEO at IHCL, said he was “de­lighted” that the Taj Ma­hal ho­tel would re­main part of the com­pany. “We look for­ward to in­vest­ing in the ho­tel and tak­ing it to new heights of In­dian hos­pi­tal­ity. The Taj leg­end will con­tinue to serve Delhi with el­e­gance and charm,” he added.

IHCL had signed a lease agree­ment with the NDMC in 1976 and the ho­tel was in­au­gu­rated two years later. In 2011, the 33-year-old lease ended. When the NDMC de­cided to auc­tion the prop­erty, In­dian Ho­tels chal­lenged the de­ci­sion in the Delhi High Court. Af­ter sev­eral lease ex­ten­sions, the Supreme Court ap­proved the auc­tion last April. “This was an un­equal race where the ex­ist­ing op­er­a­tor got a ready ho­tel while a new bid­der would have only got an as­set re­quir­ing a large in­vest­ment and a long wait­ing time to make the ho­tel op­er­a­tional. In such cases, the ex­ist­ing lessee will al­ways have ad­van­tages. The auc­tion may have been done for rev­enue max­imi­sa­tion, but the con­di­tions cre­ated did not re­flect the same,” said an ex­ec­u­tive with a hos­pi­tal­ity con­sul­tancy firm.

The road to auc­tion was not easy for the NDMC. It failed to find the de­sired min­i­mum three bid­ders to con­clude the auc­tion process twice. Fol­low­ing this, the NDMC de­cided early this month to re­lax the con­di­tions for the auc­tion. It brought down the min­i­mum num­ber of qual­i­fied tech­ni­cal bid­ders to two for a suc­cess­ful auc­tion from three in the pre­vi­ous two ten­ders. It had also re­laxed some of the fi­nan­cial con­di­tions of el­i­gi­bil­ity. The av­er­age rev­enue re­quire­ment from prospec­tive bid­ders was brought down. The three-year av­er­age rev­enue re­quired was brought down to ~3.5 bil­lion com­pared to ~4 bil­lion pre­vi­ously.

When the NDMC got a green light to auc­tion the ho­tel last year, a num­ber of hos­pi­tal­ity play­ers ex­pressed an in­ter­est to bid for the iconic ho­tel. These in­cluded EIH (which runs Oberoi chain of ho­tels), Lemon Tree, SAMHI and Saraf Ho­tel En­ter­prises. How­ever, none of these com­pa­nies bid mainly due to re­stric­tive clauses in the ten­der.

Some in the in­dus­try thought it was best for IHCL to re­main the op­er­a­tor for this ho­tel. Jean-Michel Cassé, the chief op­er­at­ing of­fi­cer (In­dia and South Asia) at French ho­tel firm Ac­cor, said in March that the ho­tel should re­main a Taj prop­erty. “I be­lieve this ho­tel has been known as Taj for so many years and it should re­main a Taj. If you bring a Pull­man there what are you go­ing to do? You have to break ev­ery­thing, ren­o­vate, spend money and the in­vest­ment is huge. Then you will re­launch. You will lose busi­ness as you will spend time in all these. It is a very-very com­pli­cated deal to be able to go through smoothly,” he said. Pull­man is a lux­ury brand owned by Ac­cor.

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