Tata Sons may take preferential route to infuse fresh funds into IHCL

Tata Sons plans to infuse fresh funds into Indian Hotels Company (IHCL), which runs the Taj chain of hotels, by increasing its stake in the company, possibly through preferential shares, said officials aware of the development. The company lost revenue after the lockdown imposed on March 25 last year following the Covid-19 outbreak and a significant number of its hotels had to be closed.

Indian Hotels reported a consolidated net loss of Rs 747 crore for the nine months ended December 31, as revenue declined sharply to Rs 961 crore from Rs 4,463 crore in FY20. Now, as the second wave of coronavirus infections impacts business amid restrictions on commercial activities, Indian Hotels needs fund support from the parent company, officials said.

Tata Sons is also keen to increase its stake in the company, currently at 38.09%, to about 45%, officials said. Indian Hotels shares have declined 15% over the past three months compared with a 2% fall in the Nifty index. The holding company is expected to pump in Rs 1,000-1,500 crore, the officials said.

Tata Sons did not comment on the matter. Indian Hotels did not respond to an email on the subject.

While demand had started to recover for Indian Hotels of late, especially in leisure destinations, the second wave has stifled hopes of a sustained revival. Most large hotel chains are expected to close FY21 with losses, with many business locations affected.

Indian Hotels raised Rs 150 crore in June last year by way of non-convertible debentures, while in 2018, the company raised Rs 1,500 crore through a rights issue. The company’s overall debt has almost doubled to Rs 4,572 crore as of September 2020 from Rs 2,326 crore in FY19.

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On account of Covid-19, the company had to raise additional debt in the March 2020 quarter and in the first half of FY21 to offset the reduction in its cash generation ability and maintain its liquidity profile, said in a report in January 2021.

The company’s interest coverage ratio — an indicator of how easily it can pay or cover the interest on its outstanding debt — moderated to 1.8 times in FY20 vis-à-vis 3.11 in FY19. The company implemented cost-control initiatives that led to savings of 51% in the first half of FY21.

Although the company’s performance may improve sequentially in the second half of FY21, it is expected to post a significant fall in revenue and erosion of profitability in the previous financial year as a whole due to the impact of the Covid-19 pandemic.

Indian Hotels’ occupancy and average daily rate improved substantially by 1,740 basis points and 50%, respectively, to 45.6% and Rs 5,643 in the December 2020 quarter over the September 2020 quarter. One basis point is equivalent to 0.01%.

The management attributed the recovery to a spurt in leisure travel as last year’s lockdown was lifted in phases. However, with fresh lockdowns being contemplated in some states and restrictions on activities at night and on weekends, most analysts expect business travel will remain subdued for at least the next couple of quarters and a recovery is possible in the later part of FY22.



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