ITC may hike stake upto 25% in EIH & Hotel Leela: Deveshwar

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ITC chairman YC Deveshwar has said that his company may increase stake in the Oberois controlled- EIH and Krishnan Nair-owned Hotel Leela , if the prices are attractive.

In the same breath, he added that it was for the treasury division to take a call on that. Speaking to CNBC-TV18, Deveshwar said the company's investments in EIH and Hotel Leela were purely treasury decisions. "We are a buyer and seller in EIH, Hotel Leela at the right price," Deveshwar told CNBC-TV18.

Under the new Sebi takeover code, an acquirer can buy up to 25% in a target company without having to make an open offer.

Earlier, the threshold limit beyond which the acquirer had to compulsorily make an open offer was 15%. ITC holds 14.98% in EIH, and a little over 13% in Hotel Leela, as on December 31, 2011.

ITC started buying EIH shares in 2001, and built its stake in Hotel Leela over the last three years. While Deveshwar may deny any plans of taking control of the two firms, the market is skeptical if ITC will be content to remain a passive investor in these companies for long.

More so, in the light of the latest statement by Deveshwar, who expects also shares of hotel companies to underperform near term because of poor earnings arising from a sluggish global economy. On Wednesday, Indian Hotels reported a tepid 7.4% year-on-year growth in quarterly revenues, despite the quarter being the best for the hospitality sector in general.

In August 2010, RIL picked up a 14.2% stake in EIH, ostensibly to help the Oberois pre-empt a hostile bid by ITC. Market watchers are keenly watching if ITC would want to challenge the Ambanis by increasing their stake in EIH to the maximum permissible 25%.

FMCG business

Even though cigarette producer ITC's third quarter performance has beaten street estimates, concerns over volume growth is still looming large. In the December quarter, ITC's sales rose by 14.2% YoY to Rs 6195 crore while net profit rose by 22.5% to Rs 1701 crore.

However, Deveshwar is confident of the FMCG business' growth. He said that the FMCG business is likely to see profit of Rs 1500 crore by 2017. In the FMCG segment, it sells brands such as Sunfeast biscuits, Bingo snacks and Mint-o-Fresh candies.

He explains that its food business is profitable while the personal care business is in gestation period.

Meanwhile, he is hoping that goods and service tax (GST) will be implemented soon.

Below is the edited transcript of the interview. Also watch the accompanying videos.

Q: What do you make of the proceedings that are going on at the Congress Centre? Do they give you an indication of what this year will bring to business across the world?

A: There is a pall of gloom in most of the developed world, particularly the Eurozone. So that is really overshadowing most of the proceedings here. There are so many risks that they recounted right in the beginning. Any of the risks, if triggered, can actually snowball into a global crisis. People very much fear that there may be a double-dip recession especially here in Europe. So everything is being looked at from the angle of firefighting and how to get the Eurozone problem solved and get Europe into the growth path and how to get the debt here into a more sustainable mode.

Q: How would you connect that in terms of the global economic outlook to the impact on India; even if our domestic market gives us a big buffer in terms of growth we are linked to the global economy. We can't escape the impact of the economy. So what would you make of how India will react to the events that are being foreseen for the rest of the year?

A: It is true that India is no more isolated completely. It is not as integrated as many countries in the West, but we are integrated with the global economy and what is going on in the rest of the world has an impact on India. If not in real terms, for example tourism, in the source markets of US and Europe people are not in a mood to fly out, because they are tackling their own fires.

So it has an impact on India, but psychologically too, our people in the stock market look at what is happening in the West and then their actions are guided by what they see early morning. So I think we need to guard against that, getting too influenced by the gloom from overseas shores.

Q: How do you see the domestic India story evolving from all the business leaders that you interact with here from across the world? What are they telling you about whether they are disappointed by the lack of pace in India, by the slowing growth in India and therefore reducing investments or outlook on India?

A: It is only the Indians who are pessimistic about India. I can tell you they envy a country like India with 7% growth rate. China is 8%, India is 7%, then the African subcontinent. Even the British Prime Minister mentioned about the things to be done by the Eurozone he said that to conclude trade deal with India is one of the major items on the agenda. So obviously people are looking to India as a growth engine.

Q: What is your perception of the last 12-18 months in India - the pessimism which exists within the Indian business community, the lack of reform, constant complaints about policy paralysis and the fact that we are seeing slowing growth? In fact several people I was talking to from India today said will 6% become the new enumerative growth. So is that the question we are now asking ourselves?

A: I don't know. I don't want to be critical of people. We seem to be talking ourselves into it. Firstly, let's not get ourselves. Some of the problems are real. For example, inflation has been important, energy is an issue. The new situation emerging with Iran also places at risk the cost of energy in India. We have seen that Coal India has not been able to deliver the quantity of coal that is required for growth of the Indian manufacturing sector. So the moment inflation began to rise people knew that the Reserve Bank will raise the policy rate and that it would ultimately slowdown, that is what the policy rates are meant to do.

Q: It's not just the policy rates; isn't it a variety of other factors that has killed the investment outlook?

A: There are. But then you begin to talk yourself into a slowdown and then you also hold back your investment. At the end of the day, Indian balance sheets are pretty strong. There is no reason why people should not be investing during this period. Even if there is a bit of cyclicality, it takes a long time for an investment to fructify.

Q: Those in infrastructure will tell you or those who want to build large manufacturing plants?

A: You are absolutely right, that is our issue also. We have Rs 25,000 crore of investment that has been sanctioned by the board and we are not able to execute it and the big reason is land. Unless India gets its agricultural productivity up and releases land for alternative use, this is going to be very miserable. There are other issues of water and energy, education and health and so on, but land is a very major issue and linked to productivity. Since Indian farms are small and dispersed, to get knowledge and empowerment to the farmer to increase productivity is a major task.

Q: Would you think that land and therefore the Land Acquisition Rehabilitation Bill as well as power reforms are two on the top of the list that the government needs to tackle?

A: Everything springs from food security and from empowerment of security of the farmer. So nobody wants to touch his land. But once agriculture productivity comes out, land would be surplus.

Q: So are you in favour of the Land Acquisition Bill that has been proposed by the government or do you, like many in India, believe it is very impractical to implement?

A: No, I am of the view that farmers must be rewarded or must be paid fair price for land.

Q: Does the bill do that for you?

A: I have not gone through the bill in detail.