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Indian Hotels hopes to wipe out Rs 3,571 crore debt in 18 months

October 26
18:56 2021

The company expects to clear its debt by raising funds through a rights issue, followed by a qualified institutional placement of shares

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The Indian Hotels Company Ltd., the country’s second-largest hotel chain that’s promoted by the Tata Group, hopes to pay off all its debt by April 2023 as it emerges from the Covid-19 pandemic.

The company’s consolidated debt hit a high of Rs 3,612 crore in June and was little changed in the quarter ended September.

A substantial chunk of the debt reduction will come from a Rs 2,000 crore rights issue and through a qualified institutional placement of shares for Rs 2,000 crore.

The board approved the fundraising plan on October 21. Indian Hotels and its subsidiaries operate properties including Taj, SeleQtions, Vivanta, and Ginger.

“After the completion of capital raise, we will use it primarily to reduce debt along with Ginger stake acquisition,” Giridhar Sanjeevi, executive vice president and chief financial officer of Indian Hotels, said on an earnings call. “We will then have to start correcting the debt levels in subsidiaries like Ginger, the US properties.”

Indian Hotels’ consolidated net debt ballooned to a high of Rs 3,612 crore in June from Rs 1,915 crore reported in March 2020, a jump of 89 percent. The debt stood at Rs 3,571 crore in September.

“Substantial debt will come down by March and in relation to subsidiaries and other entities, it will probably take us another 18 months. We have to work through the details but that is the aspiration we have,” Sanjeevi said.

Indian Hotels plans to buy the remaining 39.8 percent stake in Roots Corporation, which operates more than 80 Ginger properties in India. This will make Roots a wholly owned subsidiary of Indian Hotels. Tata Opportunities Fund, a third-party private equity fund, is looking to exit Roots.

Indian Hotels had said earlier it planned to make Roots a 100 percent subsidiary before its initial public offering. The company wants to operate at least 100 hotels with 10,000 rooms before the IPO.

Business improvement

Rapidly improving business conditions aided by the accelerated vaccination drive across the country helped Indian Hotels to push occupancy and average room rate higher.

“IHCL’s recovery has been better than expected. Consolidated sales (now over 70 percent of pre-Covid times) rose 184 percent, boosted by leisure travel (occupancy back to pre-Covid levels), recovery in business travel, uptick in weddings and corporate events, and greater consumer preference for trusted brands,” said Mehul Desai, a research analyst at Anand Rathi.

The company’s revenue per available room climbed to 82 percent of the pre-Covid level during the September quarter, while that of the rest of the sector remained at 73 percent, according to data from STR Global.

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