Analysts upbeat, not wary of Indian Hotels' Belmond exit at loss

Moneycontrol Bureau Analysts are betting on Indian Hotels after it exited Belmond (formerly Orient Express Hotels) to reduce debts. Indian Hotels Company's overseas subsidiary Samsara Properties sold 51.75 lakh representing 5.1 percent class A shares of Belmond for a consideration of USD 49.57 million (over Rs 330 crore) to pare debt. This follows on the USD 125 million exit from Taj Boston announced last month. JP Morgan says with both of these asset sales, Indian Hotels' net debt will reduce from Rs 4700 crore as of March 2016 to Rs 3500 crore on a pro-forma basis. The brokerage firm is overweight on the stock stating that these assets were not contributing to earnings and were a drag on the balance sheet and earnings, with no major value being attributed to these.

"Indian Hotels’ exit from its loss making US investments even at a loss will be taken positively by the market. Pierre, NY remains a key drag on the financials for the company and a roadmap on either breakeven or exit is awaited," it says in a note.

Pierre, NY is a leasehold asset and hence consummating a sale on the same may not be feasible, it adds. The company has already formed IHOCO BV, a 100 percent subsidiary that holds its offshore assets. This gives Indian Hotels additional flexibility for fund raising, if required.

Another factor which may work in favour of Indian Hotels is approval of Sea Rock which is expected shortly. Though Sea Rock's estimated capex is Rs 1000 crore over four years, the brokerage firm is not overly worried about it as the property is in a marquee location and adjoins one of its very profitable hotel Taj Lands End. "Once completed, there will be enough synergies to be derived between the two hotels and the combined positioning will likely be of very high value to IH. Further this will contribute to EBITDA only likely five years out and in the interim IHCL should generate enough free cash flows to not only fund this capex but also reduce overall debt," it adds.