Indian Hotels Company Ltd. (IHCL) of the Tata Group, which owns, operates and manages 136 hotels under the Taj Group, has embarked on a strategy to exit loss-making hotels overseas to pare debt and turn profitable within a year.
As part of an ‘asset right and asset light’ strategy, the company has decided to divest its ownership in Taj Boston hotel in the U.S., which was acquired in 2006 and has been making losses ever since.
The company’s board on Wednesday granted approval for the sale for a minimum of $125 million (Rs. 841 crore).
IHCL plans to utilise the proceeds entirely to retire debt, estimated at Rs. 4,781 crore as on March 31, 2016.
The company expects the deal to be completed during this year. While the asset will change hands, Taj will operate the hotel through a management services contract with the new owner so as to retain its brand presence in the U.S., its single largest source market.
While a large part of its international portfolio is profitable, some hotels in the West, including the Pierre in New York, are incurring losses, and these properties are set to change hands. Top Taj executives declined to identify the properties.
“We have been re-looking at all options for a course correction in strategy, focusing on growth in high margin markets, evaluating the relevance of some of the existing assets in the portfolio to reduce leverage. We have just announced the disinvestment of Taj Boston,” said Anil Goel, CFO, IHCL.
Mr. Goel has been working on the turnaround strategy under the new MD & CEO, Rakesh Sarna, a Hyatt group veteran, who was handpicked by Tata Group Chairman Cyrus Mistry in 2014 to set things right at the Taj.
Mr. Sarna, while addressing a press conference in Mumbai on Thursday, said the company would use the proceeds of the disinvestment to not only reduce debt but also to invest in growth. He said the company’s main market would be India and it will further grow its presence in Mumbai, Delhi, Goa, Bengaluru, Chennai and Hyderabad, mainly through management contracts.
“At the same time, we will not take the focus away from the remaining places, which include the Kerala circuit, the Himalayas and the north-east,” Mr. Sarna said. “We will focus on areas where we make money. We will be opportunistic and create value for all stakeholders. We will have more hotels in Mumbai and Delhi,” he added.
Gulf Cooperation Council will remain the focus market for the international expansions of Taj. Similarly, the company will focus on the south-east Asian market and plans to have hotels in Thailand, Singapore, Vietnam and Cambodia.
“We want to grow the company but we do not want to be exposed to undue risks,” Mr. Sarna said, referring to the high-entry barriers in markets like Tokyo, Singapore and Seoul.
In 2015-16, the Taj Group added 1,500 rooms with a 1,000 more to be added in 2016-17. It currently has an inventory of 16,500 rooms in 136 hotels. In 2015-16, its consolidated net loss fell to Rs. 61 crore from Rs. 378 crore in the previous year and the company believes it is on the path of profitability.
The Taj Boston hotel was acquired in 2006 and has been making losses ever since