Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Companies / People/  Indian Hotels two years away from profit: CEO Rakesh Sarna
BackBack

Indian Hotels two years away from profit: CEO Rakesh Sarna

The operator of Taj Hotels Resorts and Palaces is taking steps to pare debt, build new hotels, says Sarna

Indian Hotels owed more than `4,000 crore to its creditors as on 31 March. It has posted losses in fiscals 2013 and 2014. Photo: AFPPremium
Indian Hotels owed more than `4,000 crore to its creditors as on 31 March. It has posted losses in fiscals 2013 and 2014. Photo: AFP

Mumbai: Tata Group-controlled Indian Hotels Co. Ltd will take at least two years to return to profitabilty as the operator of Taj Hotels Resorts and Palaces takes steps to pare debt and increases spending on building new hotels, according to managing director Rakesh Sarna.

“We are at least two years away from net profit," said Sarna in his first interaction with reporters after taking over as managing director and chief executive of the 112-year-old hotel operator in September.

Sarna said he is willing to take a hard look at three priorities of cutting debt, building hotels and resolving legal issues.

Indian Hotels owed more than 4,000 crore to its creditors as on 31 March. It has posted losses in fiscals 2013 and 2014.

In 2013, the hotel company had reported a one-time charge of 424 crore on account of a provisioning of its investment in the US hotel company Belmond Ltd, formerly known as Orient-Express Hotels Ltd.

Indian Hotels’ acquisition of Hotel Sea Rock in the western suburb of Mumbai has also been challenged in the Bombay high court. An activist has filed a public interest litigation (PIL) alleging violation of environmental norms by the company.

Indian Hotels is also trailing rivals in terms of building new hotels. Local and international hotel operators have invested in new properties to establish a formidable presence in the market. Indian Hotels is building only 19 out of the total 357 new hotels that are coming up over the next two years.

“My biggest anxiety is that the development opportunities in our world today is perishable. The number of opportunities will reduce over time. We don’t want to lose on opportunities," Sarna said.

The situation is also challenging for Indian Hotels in the context of oversupply of hotel rooms that is denting profitability, said an analyst with a local brokerage, who tracks the company closely. He requested anonymity.

Prior to joining Indian Hotels, Sarna was the group president of Americas and executive vice-president at Hyatt Hotels Corp. and has worked with the company for three decades.

“The twin challenges of debt reduction, combined with finding growth capital for expansion would be the toughest tasks for Indian Hotels in the near to medium term," said P.R. Srinivas, director (hospitality) at consulting firm Cushman and Wakefield India Pvt. Ltd. “In the current economic scenario, hotels (while being vital infrastructure projects), do not find debt at reasonable terms, as is being seen with other hotel owners and operators in the country. As a result, Indian Hotels may have to opt for a higher cost of borrowing to fund its expansion plans."

Sarna is unfazed.

“Free cash flows of Indian operations are helping the company. If we can plug the leaking buckets of the US operations, we can manage debt. Debt is not bad, if we can manage it well," Sarna said.

He said the company is considering measures, including selling its stake in the US hospitality firm Belmond and finalizing the Sea Rock deal.

Belmond is buying back shares, which will allow Indian Hotels an exit after it invested around 1,200 crore by buying stocks in the Bermuda-based company in phases.

The sale of shares in Belmond will be a “shot in our arm", Sarna said.

The company is in discussions with Belmond.

Sarna hopes that the Belmond deal and the Sea Rock issue would be resolved by the end of March 2016.

“In the case of Sea Rock, we are hopeful to reach some sort of conclusion either way by this financial year. We have received 23 permissions on environment out of 24," Sarna said.

He ruled out the option of raising new funds or approaching the promoter group for money as the company wants to service its debt on its own.

Sarna said that he has restructured Indian Hotels, giving general managers more power to manage the hotel properties.

“In the past, we used to have three verticals to manage the three brands—Vivanta, Gateway and Taj. Now we have moved to a structure where executives are hired for separate geographies handling 20-30 hotel properties," he said.

He has also hired France’s Louvre Hotels Group’s vice-president Chinmai Sharma as chief revenue officer of Indian Hotels.

Indian Hotels is also considering entering international markets, including Bangkok, Singapore, Shanghai, Bahrain, Muscat and Abu Dhabi.

Sarna said that the company is in the process of revisiting its brand and is in talks with leading branding consultants.

“We are developing the concept of ‘Tajness’. I strongly feel that Taj should be the proud custodian of Indian hospitality," Sarna said, without disclosing details.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 20 Apr 2015, 05:02 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App