Indian Hotels Company Ltd, which runs the Taj Group of Hotels, is altering its business model, according to people familiar with the development.
Till now, the country’s largest hospitality chain has been constructing hotel projects itself, which often leads to cost over-runs and clogged finances.
Under a new model, all hotel projects of the company will be executed by Tata Realty & Infrastructure Ltd (TRIL), while IHCL will manage them, one person said.
TRIL has already entered into an agreement with IHCL on this, another person said, adding the company has taken over -- or is in the process of doing so -- three projects.
Officials of both Indian Hotels and TRIL refused to comment.
The Tata hospitality jewel has been financially stressed, posting net losses for the last four quarters. In July-September, the company reported a net loss of Rs67.82 crore on a net sales of Rs813.80 crore as against a net loss of Rs52.59 crore (on net sales of Rs743.86 crore) in the corresponding period last year.
The company owns and manages 115 hotels with 13,887 guestrooms under the Taj, Vivanta, Gateway and Ginger (through subsidiary Roots Corp Ltd) brands.
Traditionally, ownership and managing the operations (or management) are the obverse and reverse of the hotel business.
When management gets separated from ownership, it takes out all hotel assets from a company’s books but there is little clarity on whether IHCL will go the full tilt on this path – of spinning off the ownership of other properties that it already owns, especially marquee estates such as the Taj Mahal at Gateway of India.
An analyst with an audit firm, who did not want to be named since he’s not authorised to speak to the media, said a spinoff significantly enhances valuations and shareholder value. It also brings in efficiency with respect to taxation and better profitability.
IHCL has often talked about going asset-light.
"I am not at all surprised if the Tatas are thinking on those lines. While there aren’t too many examples to cite in the Indian hospitality market, that’s exactly how international players -- be it Marriott, Starwood or Hilton -- have restructured to become a pure-play hotel management companies," said a top hotelier also requesting anonymity.
In a similar exercise early this year, the Warburg Pincus-funded Lemon Tree Hotels separated ownership and management. The Patu Keswani-promoted entity then went on to also set up a third-party hotel management company and introduce new hospitality brands.