Tata Group's Indian Hotels has put off plans to acquires a Rs 120 crore stressed asset due to uncertainty in the hospitality business following the lockdown.
This would have been the first buyout under the ₹4,000-crore investment platform set up in partnership with Singapore's sovereign wealth fund, GIC, to acquire fully operational hotels in the luxury and upscale segments in India over the next three years.
“We were looking at an acquisition of a stressed asset. It was a small transaction was over Rs 120 crores. That deal has not closed at the moment, and we have deferred the transaction now. We’ll have to wait and watch on whether we'll eventually complete or not as we are unsure of it at the moment,” Giridhar Sanjeevi, Chief Finance Officer at IHCL told BusinessLine. The funding platform with GIC was announced in May 2019.
However, with the ongoing stress being faced by the hospitality industry, there could be more opportunity to buy out troubled assets. But to be able to acquire such assets, IHCL first needs to ensure that its own business emerges out of the lockdown with minimum damage. “We need to be alive to take on these opportunities. Clearly, we need to be able to fund any of it in a sensible way. We can't borrow to acquire,” Sanjeevi said.
IHCL reported a 43.8 per cent lower net profit of Rs 92.5 crore for the fourth quarter ended March 31 in comparison to Rs 164.77 crore recorded in the same quarter of the previous fiscal. Sanjeevi said that the impact on the books was mainly because of the rapid spread of the COVID-19 pandemic during the last 20 days of March. “Our revenues dropped by 40 per cent during this time,” he said.
“In early March we started to make sure that we ramped up our liquidity to tide through the pandemic. One of the things we did was to borrow Rs 335 crores and that is why the gross debt went up,” Sanjeevi said.
He further added that IHCL was able to benefit from the long term repo rate operation where RBI gave liquidity to banks. “We drew Rs 450 crores under the program. It's three-year unsecured money.”
However, he said that more needs to be done by the policymakers. Giving examples of reforms for the hospitality sector in the UK and the US, where players got property tax waivers and subsidies for employees among other things. Of course, “the government has definitely allowed like provident fund contributions being delayed or delaying GST and income tax contributions. We wish that we had something more,” he said.
To tide over the current crisis, the company is resorting to salary cuts and reskilling for its staff. It is also ramping down expenses on renovation and beautifications unless it is important like the renovations at Taj Mansingh in New Delhi.
The company is betting big on Ginger, Ama Nature & Trails, Taj Land’s End, and Chambers to bring business as lack of international toruists has curtailed operations in other brands. The actual growth driver, according to Sanjeevi will be from Ginger. “Especially in the COVID era, the price point at which Ginger is operating is excellent.” Last fiscal, Ginger got a facelift. “12 hotels were repositioned which gave a 21 percent boost to us,” he said. This repositioning has also given the company to boost its Average Room Rates from Rs 2,200 earlier to Rs 3,000 now.
The Group CFO said that post the quarantine, people would prefer a more safer place to unwind. In this case, “Staycations certainly will pick up. Like Taj Lands, in good times it, as a hotel, which has always done fantastically well on staycation and in times like this, I think staycations will pick up.”
The company is also placing its bets on increasing popularity of micro-weddings. According to the government mandate, more than 50 people are not allowed to gather at a wedding occasion.
The company is looking at ancillary revenue from its Chamber club memberships. The company added 150 new members ever since the programme was relaunched last year taking the number to 2000 members.
“It’s a good stream of revenue because it is over 80 per cent of profit margins for us. We are extending the Chamber benefits for members at all our properties globally,” Sanjeevi said.