Tata-Mistry rift to weigh on Indian Hotels

At this juncture, when the rift between Tata Sons and Cyrus Mistry is widening, it is a tough call for investors to take a stand on the stock


The Tatas have built the Taj brand image over several decades, but Cyrus Mistry has trimmed the sails in the recent past, to pull the ship out of troubled waters.  Photo: Ramesh Pathania/Mint
The Tatas have built the Taj brand image over several decades, but Cyrus Mistry has trimmed the sails in the recent past, to pull the ship out of troubled waters. Photo: Ramesh Pathania/Mint

The September quarter results of Tata group- owned Indian Hotels Co. Ltd missed analysts estimates. But investors brushed aside the results, looking instead at the signals emanating from the company’s board meeting, which gave a new twist to Indian Hotels’ prospects amid the Ratan Tata-Cyrus Mistry battle.

One could argue it’s a positive development, because six independent directors on the board of Indian Hotels, which houses the Taj brand of hotels, backed Mistry, lauding his strategic decisions in the company, which could do much to ease Indian Hotels’ financial burden.

One such controversial decision was the sale of “Taj Boston” for $125 million. Indian Hotels took a hit of Rs103.07 crore on that, mirrored as “exceptional items” in the September quarter’s profit and loss account. Besides, the company also wrote off losses in an international subsidiary. Fortunately, foreign exchange gains and tax refunds lowered the extent of exceptional loss during the quarter.

Including these losses, the company posted a net loss of Rs26.8 crore. While this was worse than what the Street expected, it was hugely lower than the year-ago period’s loss of Rs152 crore and the June quarter’s loss of Rs171 crore.

One can recall that even in the earlier quarters, Indian Hotels had seen write-offs on “infructuous projects” that weighed down profitability. Interest costs fell as a percentage of sales and in absolute terms too, when compared to a year back.

A report by Elara Securities (India) Pvt. Ltd in August 2016 estimated that Indian Hotels’ consolidated operating margin would improve by about 2% following the sale of Taj Boston, as costs would be trimmed. In fact, the September quarter’s consolidated operating margin was up by about 150 basis points from a year back, to 8%, in spite of more or less flat revenue. A basis point is one-hundredth of a percentage point.

At this juncture, when the rift between Tata and Mistry is widening, it is a tough call for investors to take a stand on the stock. The Tatas have built the “Taj” brand image over several decades, but Mistry has trimmed the sails in the recent past, to pull the ship out of troubled waters.

While fundamentals like occupancy rates and room tariffs in the domestic market are improving, Indian Hotels’ stock is at present in the eye of the storm. It may be choppy until the Tata-Mistry battle comes to an end.

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