Kolkata: EIH Ltd, one of India’s oldest hotel companies, has decided to stop building properties, turning focus to managing ones owned by others.
The last two it will build will be on plots it owns in Bangalore and Goa—both require approvals from the environment authorities.
EIH owns “too much real estate,” said P.R.S. Oberoi, the company’s 83-year-old chairman. He has been saying this for several years, but for the first time the company’s management has said it has decided to stop building hotels after the proposed projects in Bangalore and Goa are concluded.
However, EIH Associated Hotels Ltd—a joint venture between EIH and the Rajan Raheja group—will continue to build hotels, “cash flow permitting,” Oberoi said.
P.R.S. Oberoi, chairman, EIH.
The joint venture, in which the EIH founders have a combined stake of 75%, was intended to be a real estate company, according to vice-chairman S.S. Mukherji. EIH manages all properties owned by it.
EIH and EIH Associated Hotels jointly own 18 hotels. EIH manages 11 other hotels—it has nominal equity interest in some of them, according to Mukherji. Going forward, EIH does not wish to have even nominal equity interest in hotels managed by it, he added. However, in certain properties, such as in the yet-to-be-launched Trident hotel in Hyderabad, EIH had to take a small equity stake because of the “tender conditions” under which land was allotted to the majority owner, Mukherji said.
The Trident hotel will be launched towards the end of 2012 or early next year, according to Oberoi. This will be closely followed by the launch of a luxury property under the Oberoi brand, which, too, is under construction.
Both the Trident and Oberoi brands are owned by Oberoi Hotels Pvt. Ltd—an investment arm of the Oberoi family. They are licensed to properties under the management of EIH.
The last two properties that EIH will build on its own are still under planning. The company’s 55-acre plot in Goa is on a seafront; the one in Bangalore, measuring about eight acres, overlooks a lake.
A year ago, Oberoi had said the Goa and Bangalore projects could be undertaken in partnership with Reliance Industries Ltd (RIL), which in 2010 bought a 14.12% stake in EIH from the Oberoi family for Rs 1,021 crore. On Tuesday, however, Mukherji said EIH will own these properties as and when they materialize.
Instead, in partnership with RIL, EIH is looking to build hotel and luxury homes in Navi Mumbai where the yarn-to-retail conglomerate owns a 15-acre plot, Oberoi said. The partnership, though, has not yet been finalized, he added.
EIH continues to pursue growth through several new projects—in exotic tourist destinations such as Marrakech and Casablanca, and in cities such as Pune and Ahmedabad—but it will not own these.
The strategy is the opposite of the investment-led growth pursued by ITC Ltd, which, impressed with the Oberoi and Trident properties, acquired a near 15% stake in EIH a decade ago. ITC, which continues to invest heavily to build hotels, owns 14.98% in EIH.
For years, EIH had a problem of indebtedness having expanded by building expensive hotels, said Rajesh Agarwal, head of research at Eastern Financiers Ltd, a Kolkata-based broking firm.
The Oberois were eventually forced to sell stake to RIL to raise cash to subscribe to a Rs 1,178-crore rights issue—the company used Rs 900 crore of the issue proceeds to pay down debts.
Its current strategy of not investing in real estate appears to have emerged from its past experience, Agarwal said. It is also in line with broad industry trends.
Because of the stake sale in 2010, the Oberoi family’s ownership went down to 32.31%. On Tuesday, Mukherji said the promoters will look to raise their ownership to around 42%—they currently own 35.23%. Finances permitting, the Oberoi family’s investment arms will continue to buy EIH’s shares, Oberoi said.
RIL, seen by the EIH management as a friendly shareholder, has also been increasing its stake in the firm—it currently holds 18.53%.