Indian Hotels Company, one of the largest hospitality companies in the country, scrapped plans to sell assets last year due to poor valuations amid the first wave of the COVID-19 pandemic.
The Tata Group chain, with brands such as Taj Hotels, Vivanta, SeleQtions and Ginger, posted a loss of Rs 720 crore in FY21, its biggest ever in a year, as the hospitality sector struggled with restrictions that resulted in negligible occupancies and heavily discounted rooms. Several hotel companies were forced to cut costs and become financially prudent.
Indian Hotels planned to sell some properties operating under the Ginger brand and take them back on rent under its Aspiration 2022 strategy, which is targeted at improving margins, reducing property ownership and monetising assets.
“Effective asset management was very important because we could have sold assets very cheap and we would have looked very bad today because the prices have bounced back to 70-80 percent of the level,” Puneet Chhatwal, managing director and CEO of Indian Hotels, told analysts. “But at a time like this last year, assets were selling at 40 percent of the replacement value and the gap between the buyers and sellers was huge.”
The company is focusing on being asset-light for the future. About 94 percent of properties being developed won’t be owned by Indian Hotels but will be under management contracts. The company won’t invest money in building assets, which is a break from the past, when it had to fund such development on its own in the absence of investors.
“We’ll continue the pursuit of asset-light growth and also monetisation of certain non-core assets or non-strategic assets. We still own hotels, either directly or through our subsidiaries, in markets that, if we were to spend money today, we would never go and buy one. So, I think we are happy to trade off for a management contract or a lease in return,” Chhatwal said.
The planned asset sale was aimed at reducing the company’s net debt burden, which ballooned 67 percent to Rs 3,110 crore in FY21 from Rs 1,857 crore in FY20, according to the company’s presentation. The net debt to equity ratio was 0.73 last year.
“We tried to monetise the assets last year, but they were valued much lower. And now, it’s been a significant recovery in asset values,” said Giridhar Sanjeevi, chief financial officer of Indian Hotels. “So, there will be a restart in terms of monetisation now. And we are open to all of these. We will not add to debt to buy any other asset – that’s very clear. We will see how we can participate in a meaningful way in M&A activities using the right capital and not through debt.”