IHCL’s low borrowings obscure a much larger lease liability footprint, quick execution is key, say analysts

IHCL has significant lease liabilities, but has charted out a capital-light growth path

The Indian Hotels Company Ltd (IHCL), the owner of the Taj group of hotels and its associated brands, has reported consolidated borrowings of Rs 279 crore as of September 30, according to its latest investor presentation, even as its lease liabilities stood at Rs 2,947 crore during the same period.

The Tata group-owned hospitality company has been highlighting its transition towards a capital-light growth strategy, with a greater focus on operating hotels through management contracts rather than owning or leasing properties. However, the latest disclosures show that lease liabilities continue to form a significant part of the company’s balance sheet.

As of the end of the September quarter, IHCL’s lease liabilities were more than ten times its consolidated borrowings. The figure was marginally higher than the Rs 2,860 crore reported at the end of FY25, indicating that overall lease commitments have remained broadly stable despite the company’s stated intent to reduce exposure to owned and leased assets.

Lease liabilities differ from conventional debt in key ways. While debt represents money borrowed from banks or lenders and brings cash into the business upfront, lease liabilities reflect future rental payments the company is contractually obligated to make for properties it uses but does not own. These obligations arise from long-term lease agreements and are recognised on the balance sheet under current accounting standards, even though they do not involve a cash inflow at inception.

Unlike loans, which can sometimes be refinanced or prepaid, lease liabilities are typically tied to long-duration contracts and are harder to renegotiate or exit without penalties. While markets generally view lease liabilities as less risky than traditional debt, they still represent fixed commitments that need to be met over time.

According to IHCL’s FY25 annual report, the bulk of its lease liabilities are classified as non-current, reflecting long-dated obligations linked to hotel properties leased over several years.

The scale of these obligations is also evident when compared with the company’s cash position. IHCL reported cash and cash equivalents of Rs 2,847 crore as of September 30, lower than the Rs 3,073 crore reported at the end of March, reflecting ongoing expansion activity and capital expenditure.

IHCL has outlined an asset-light expansion pipeline of around 22,000 rooms, of which nearly 18,000 are expected to come from management contracts. The company has also entered into sales and distribution tie-ups with third-party hotel owners, including an agreement with the Clarks group, which operates 35 hotels across India.

Despite the pivot towards management contracts, IHCL continues to invest selectively in owned assets. One such project is the upcoming Taj Bandstand hotel in Mumbai, for which the company recently completed a ₹101-crore rights issue.

During April–September 2025, IHCL reported consolidated management fee income of Rs 259 crore, up 21 percent year-on-year. Management fees accounted for less than 10 percent of hotel segment revenue of Rs 3,653 crore for the period, according to company disclosures.

Analysts tracking the company say execution will be critical in managing lease-related obligations going forward. The lease liability numbers are elevated at this stage, but much will depend on how quickly IHCL can scale up operations at leased properties to service these commitments. Execution will be key, said a senior analyst at a leading research firm who requested anonymity.

According to another market observer, a large part of IHCL's leased properties are in the budget-to-mid-premium brands such as Ginger, leased over long tenures. Other analysts, such as from Motilal Oswal Financial Services, also remain largely upbeat on IHCL, noting that it beat peers in terms of revenue growth, at 21 percent, in the first half of the ongoing financial year.

It also observed that IHCL is one of the key beneficiaries of travel and tourism growth in India, , as well as the opening of the new airport at Navi Mumbai, with the company being a large supplier of a currently-limited number of keys (around 1,500) in that market.

Brokerage firm Elara Capital has noted that IHCL’s recent hotel sign-ups are increasingly skewed towards the premium Taj brand, which typically generates higher fees per room compared with mid-scale and budget formats.

An email sent to IHCL seeking comment on its lease liabilities and its asset-light growth plans remained unanswered until the time of publishing this article.